What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-10-20 compared with 2022-10-14 · 597 added, 411 removed, 762 unchanged (57% of the section changed)

14 unchanged sentences

Cash and cash equivalents $ 365,563 $ 313,328

Short-term investments 25,251 —

Accounts receivable, net

2 unchanged sentences

Other current assets 51,790 33,486

Current assets of discontinued operations 70,574 186,281

Total current assets 907,402 1,151,865

3 unchanged sentences

Goodwill 161,958 55,121

Deferred tax assets 74,085 4,576

Other noncurrent assets 15,150 15,014

Noncurrent assets of discontinued operations — 99,145

Total assets $ 1,505,958 $ 1,572,064

2 unchanged sentences

Current debt 35,618 8,469

Deferred revenue 48,096 30,780

Acquisition-related contingent consideration 50,000 —

Other current liabilities 32,731 57,880

Current liabilities of discontinued operations 77,770 64,313

Total current liabilities 426,250 515,540

1 unchanged sentence

Noncurrent operating lease liabilities 66,407 66,990

Acquisition-related contingent consideration — 60,500

Other noncurrent liabilities 29,248 14,835

Noncurrent liabilities of discontinued operations — 20,471

Total liabilities 1,276,725 1,193,518

3 unchanged sentences

authorized 200,000 shares;

52,880 shares issued and 48,604 outstanding as of August 26, 2022;

50,138 shares issued and 48,736 outstanding as of August 27, 2021

57,542 shares issued and 51,901 shares outstanding as of August 25, 2023;

52,880 shares issued and 48,604 shares outstanding as of August 26, 2022

Additional paid-in capital 476,703 448,112

Retained earnings 82,457 251,344

Treasury shares, 4,276 and 1,402 shares held as of August 26, 2022 and August 27, 2021, respectively

Treasury shares, 5,641 shares and 4,276 shares held as of August 25, 2023 and August 26, 2022, respectively

( 132,447 ) ( 107,776 )

4 unchanged sentences

Total liabilities and equity $ 1,505,958 $ 1,572,064

(1) Receivables from related parties were de minimis and $ 14,057 as of August 26, 2022 and August 27, 2021, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

5 unchanged sentences

2022 August 27,

Net sales (1)

$ 1,819,352 $ 1,501,142 $ 1,122,377

Products $ 1,192,890 $ 1,247,470 $ 959,289

Services 248,360 148,406 96,240

Total net sales 1,441,250 1,395,876 1,055,529

Cost of sales:

Products 916,005 940,516 772,232

Services 110,074 64,315 45,324

Total cost of sales 1,026,079 1,004,831 817,556

Gross profit 415,171 391,045 237,973

2 unchanged sentences

Selling, general and administrative 260,722 204,839 158,174

Impairment of goodwill 19,092 — —

Change in fair value of contingent consideration 29,000 41,324 32,400

Other operating (income) expense 7,047 234 3,172

Total operating expenses 406,426 323,869 253,679

Operating income 114,509 55,197 41,330

Operating income (loss) 8,745 67,176 ( 15,706 )

Non-operating (income) expense:

2 unchanged sentences

Total non-operating (income) expense 48,258 24,695 16,559

Income before taxes 88,503 37,972 9,360

Income tax provision 19,911 15,466 10,503

Income (loss) before taxes ( 39,513 ) 42,481 ( 32,265 )

Income tax provision (benefit) ( 49,203 ) 18,074 9,689

Net income (loss) from continuing operations 9,690 24,407 ( 41,954 )

Net income (loss) from discontinued operations ( 195,384 ) 44,185 64,460

Net income (loss) ( 185,694 ) 68,592 22,506

1 unchanged sentence

Net income (loss) attributable to SGH $ ( 187,526 ) $ 66,557 $ 21,310

Earnings (loss) per share:

Basic $ 1.35 $ 0.44 $ ( 0.02 )

Diluted $ 1.22 $ 0.41 $ ( 0.02 )

Basic earnings (loss) per share:

Continuing operations $ 0.16 $ 0.45 $ ( 0.89 )

Discontinued operations ( 3.94 ) 0.90 1.33

$ ( 3.78 ) $ 1.35 $ 0.44

Diluted earnings (loss) per share:

Continuing operations $ 0.15 $ 0.41 $ ( 0.89 )

Discontinued operations ( 3.80 ) 0.81 1.33

$ ( 3.65 ) $ 1.22 $ 0.44

Shares used in per share calculations:

1 unchanged sentence

Diluted 51,322 54,443 48,558

(1) Sales to related parties were de minimis, $ 76,488 and $ 75,837 in 2022, 2021 and 2020, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

7 unchanged sentences

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments ( 40 ) 6,626 ( 50,375 )

Cumulative translation adjustment 15,686 ( 40 ) 6,626

Gains (losses) on investments 5 — —

Comprehensive income (loss) ( 170,003 ) 68,552 29,132

11 unchanged sentences

As of August 28, 2020 48,988 $ 1,469 $ 347,431 $ 163,477 $ ( 2,032 ) $ ( 228,241 ) $ 282,104 $ — $ 282,104

Net income (loss) — — — ( 1,143 ) — — ( 1,143 ) — ( 1,143 )

Net income — — — 21,310 — — 21,310 1,196 22,506

Other comprehensive income (loss) — — — — — 6,626 6,626 — 6,626

1 unchanged sentence

Repurchase of ordinary shares ( 1,253 ) ( 37 ) 37 — ( 48,513 ) — ( 48,513 ) — ( 48,513 )

Shares issued in connection with acquisition of Inforce 135 4 ( 4 ) — — — — — —

Share-based compensation expense — — 33,801 — — — 33,801 — 33,801

Reclassification of Capped Calls to equity — — ( 14,106 ) — — — ( 14,106 ) — ( 14,106 )

Issuance of convertible notes — — 50,822 — — — 50,822 — 50,822

Acquisition of noncontrolling interest — — — — — — — 7,477 7,477

As of August 27, 2021 50,138 1,504 396,120 184,787 ( 50,545 ) ( 221,615 ) 310,251 8,673 318,924

4 unchanged sentences

Share-based compensation expense — — 39,934 — — — 39,934 — 39,934

Acquisition of noncontrolling interest — — — — — — — 7,477 7,477

Distribution to noncontrolling interest — — — — — — — ( 3,773 ) ( 3,773 )

As of August 26, 2022 52,880 1,586 448,112 251,344 ( 107,776 ) ( 221,655 ) 371,611 6,935 378,546

Net income — — — 66,557 — — 66,557 2,035 68,592

Net income (loss) — — — ( 187,526 ) — — ( 187,526 ) 1,832 ( 185,694 )

Other comprehensive income (loss) — — — — — 15,691 15,691 — 15,691

1 unchanged sentence

Repurchase of ordinary shares — — — — ( 24,671 ) — ( 24,671 ) — ( 24,671 )

Purchase of Capped Calls — — ( 15,090 ) — — — ( 15,090 ) — ( 15,090 )

Settlement of Capped Calls — — 10,786 — — — 10,786 — 10,786

Share-based compensation expense — — 40,813 — — — 40,813 — 40,813

Distribution to noncontrolling interest — — — — — — — ( 2,009 ) ( 2,009 )

Adoption of ASU 2020-06 — — ( 50,822 ) 18,639 — — ( 32,183 ) — ( 32,183 )

As of August 25, 2023 57,542 $ 1,726 $ 476,703 $ 82,457 $ ( 132,447 ) $ ( 205,964 ) $ 222,475 $ 6,758 $ 229,233

8 unchanged sentences

Net income (loss) $ ( 185,694 ) $ 68,592 $ 22,506

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income (loss) from discontinued operations ( 195,384 ) 44,185 64,460

Net income (loss) from continuing operations 9,690 24,407 ( 41,954 )

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:

Depreciation expense and amortization of intangible assets 71,632 46,665 34,937

1 unchanged sentence

Share-based compensation expense 39,228 37,284 30,961

Impairment of goodwill 19,092 — —

Change in fair value of contingent consideration 29,000 41,324 32,400

Loss on remeasurement of Capped Calls — — 7,719

Loss on extinguishment of debt 15,924 653 —

Deferred income taxes, net ( 63,603 ) ( 20 ) ( 1,982 )

Other 4,008 582 ( 598 )

4 unchanged sentences

Accounts payable and accrued expenses and other liabilities ( 256,133 ) ( 44,907 ) 192,542

Deferred income taxes, net ( 689 ) ( 3,007 ) ( 2,115 )

Payment of acquisition-related contingent consideration ( 73,724 ) — —

Net cash provided by operating activities from continuing operations 63,677 38,862 122,840

Net cash provided by operating activities from discontinued operations 40,710 66,069 30,510

Net cash provided by operating activities 104,387 104,931 153,350

2 unchanged sentences

Acquisition of business, net of cash acquired ( 213,073 ) — ( 35,677 )

Purchases of held-to-maturity investment securities

( 25,015 ) — —

Other ( 3,675 ) ( 875 ) ( 1,121 )

Net cash used for investing activities from continuing operations ( 281,184 ) ( 21,234 ) ( 53,467 )

Net cash used for investing activities from discontinued operations ( 17,385 ) ( 17,736 ) ( 30,711 )

Net cash used for investing activities ( 298,569 ) ( 38,970 ) ( 84,178 )

1 unchanged sentence

Proceeds from debt 295,287 270,775 —

Proceeds from borrowing under line of credit 84,000 172,500 103,000

Proceeds from issuance of ordinary shares 43,045 12,140 14,923

Repayments of debt ( 127,073 ) — ( 213,436 )

Repayments of borrowings under line of credit ( 109,000 ) ( 147,500 ) ( 103,000 )

Proceeds from borrowing under line of credit — 84,000 172,500

Payment of acquisition-related contingent consideration ( 28,100 ) — —

Payments to acquire ordinary shares ( 24,671 ) ( 57,231 ) ( 48,513 )

Repayments of debt ( 21,634 ) ( 126,719 ) —

Payment of premium in connection with convertible note exchange ( 14,141 ) — —

Net cash paid for settlement and purchase of Capped Calls ( 4,304 ) — —

Distribution to noncontrolling interest ( 2,009 ) ( 3,773 ) —

Purchase of Capped Calls — — ( 21,825 )

Repayments of borrowings under line of credit — ( 109,000 ) ( 147,500 )

Other ( 6,252 ) ( 9,547 ) ( 6,138 )

Net cash provided by (used for) financing activities from continuing operations 237,221 60,645 ( 14,728 )

Net cash provided by (used for) financing activities from discontinued operations ( 805 ) 13,234 17,577

Net cash provided by financing activities 236,416 73,879 2,849

Effect of changes in currency exchange rates on cash and cash equivalents 239 154 ( 15,086 )

Effect of changes in currency exchange rates 4,765 239 154

Net increase in cash and cash equivalents 46,999 140,079 72,175

1 unchanged sentence

Cash and cash equivalents at end of period $ 410,064 $ 363,065 $ 222,986

Supplemental disclosures:

Interest paid, net of amounts capitalized $ 12,798 $ 8,029 $ 12,983

Income taxes paid, net 13,811 6,702 9,151

Cash and cash equivalents at end of period:

Continuing operations $ 365,563 $ 313,328 $ 182,842

Discontinued operations 44,501 49,737 40,144

$ 410,064 $ 363,065 $ 222,986

The accompanying notes are an integral part of these consolidated financial statements.

4 unchanged sentences

Basis of Presentation

Since our inception over 30 years ago, SMART Global Holdings, Inc.

(“SGH” or the “Company”) has grown into a diversified group of businesses focused on the design and manufacture of specialty solutions for the computing, memory and LED markets.

Our success is based on a customer-focused approach characterized by a commitment to quality, advanced technical expertise, quick time-to-market, build-to-order flexibility and excellence in customer service.

The accompanying consolidated financial statements include SGH and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America.

Intercompany balances and transactions have been eliminated in consolidation.

Presentation of SMART Brazil as Discontinued Operations :

On June 13, 2023, we entered into an agreement to sell 81 % of our interest in SMART Modular Technologies do Brasil – Indústria e Comercio de Componentes Ltda.

(“SMART Brazil”).

As a result, we have presented the balance sheets, results of operations and cash flows of SMART Brazil as discontinued operations for all periods presented.

SMART Brazil was previously included within our Memory Solutions segment.

See “Divestiture of SMART Brazil.”

Unless otherwise noted, amounts and discussion within these notes to the consolidated financial statements relate to our continuing operations.

Prior period comparative information has been conformed to current period presentation for continuing operations.

Reclassifications :

2 unchanged sentences

Our fiscal year is the 52- or 53-week period ending on the last Friday in August.

Fiscal 2022, 2021 and 2020 each contained 52 weeks.

Fiscal years 2023, 2022 and 2021 each contained 52 weeks.

All period references are to our fiscal periods unless otherwise indicated.

Financial information for our subsidiaries in Brazil is included in our consolidated financial statements on a one-month lag because their fiscal years end on July 31 of each year.

Cash and Cash Equivalents

Cash equivalents include highly liquid short-term investments, readily convertible to known amounts of cash, with original maturities of three months or less.

Cash, Cash Equivalents and Investments

Cash equivalents include highly liquid investments, readily convertible to known amounts of cash, with original maturities of three months or less.

Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments.

Cash paid for interest, net of amounts capitalized, for 2023, 2022 and 2021 was $ 41.8 million, $ 12.8 million and $ 8.0 million, respectively.

Income taxes paid, net of refunds, for 2023, 2022 and 2021 were $ 35.5 million, $ 13.8 million and $ 6.7 million, respectively.

Derivative Instruments

15 unchanged sentences

Gains and losses from the remeasurement of non-functional currency balances are recorded in other non-operating (income) expense.

The functional currency of our subsidiaries in Brazil is the

Brazilian real.

Assets and liabilities of our Brazil subsidiaries are translated into U.S.

The functional currency of our SMART Brazil subsidiaries is the Brazilian real.

Assets and liabilities of our SMART Brazil subsidiaries are translated into U.S.

dollars each period at the current exchange rate, while revenues and expenses are translated at the average exchange rate prevailing during the period.

2 unchanged sentences

Qualitative factors considered in this assessment include industry and market considerations, overall financial performance and other relevant events and factors affecting the fair value of the reporting unit.

No impairment of goodwill was recognized through August 26, 2022.

In 2023, we recorded aggregate goodwill impairment charges of $ 19.1 million.

Other than this impairment charge in 2023, there has been no impairment of goodwill for any of our current reporting units.

See “Goodwill and Intangible Assets – Impairment of Penguin Edge Goodwill.”

Government Incentives

11 unchanged sentences

Intangible Assets

Intangible assets are stated at cost and amortized on a straight-line basis over their estimated useful lives of generally four to eight years for technology, four to eight years for customer relationships and five to seven years for trademarks/trade names.

Intangible assets are stated at cost and amortized on a straight-line basis over their estimated useful lives of generally four to ten years for technology, four to eight years for customer relationships and five to eight years for trademarks/trade names.

Intangible assets are retired in the period they become fully amortized.

6 unchanged sentences

We have operating leases through which we acquire or utilize facilities, offices and equipment in our manufacturing operations, research and development activities and selling, general and administrative functions.

In determining the lease

term, we assess whether it is reasonably certain we will exercise options to renew or terminate a lease, and when or whether we would exercise an option to purchase the right-of-use asset.

In determining the lease term, we assess whether it is reasonably certain we will exercise options to renew or terminate a lease and when or whether we would exercise an option to purchase the right-of-use asset.

Measuring the present value of the initial lease liability requires exercising judgment to determine the discount rate, which we base on interest rates for similar borrowings issued by entities with credit ratings similar to ours.

4 unchanged sentences

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over estimated useful lives of generally two to five years for equipment, five to forty years for buildings and building improvements and two to five years for furniture, fixtures and software.

Property and equipment is stated at cost and depreciated using the straight-line method over estimated useful lives of generally two to eight years for equipment, five to forty years for buildings and building improvements and two to five years for furniture, fixtures and software.

Land leases are amortized using the straight-line method over their lease terms, which expire from 2057 to 2082.

7 unchanged sentences

Product Revenue :

Product revenue is generally recognized at a point in time when control of the promised goods is transferred to customers.

Product revenue is generally recognized when control of the promised goods is transferred to customers.

Contracts with customers are generally short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery.

3 unchanged sentences

Differences between the estimated and actual amounts are recognized as adjustments to revenue.

Non-cancellable, nonrefundable customized product sales are recognized over time on a cost incurred basis.

In connection with these arrangements, customers obtain control and benefit from the services as they are performed.

The terms for these arrangements provide us with a legally enforceable right to receive payment, including a reasonable profit margin upon customer cancellation, for performance completed to date.

Noncancellable, nonrefundable customized product sales are recognized over time on a cost incurred basis.

In connection with these arrangements, customers obtain control and benefit from products as they are completed.

The terms for these

arrangements provide us with a legally enforceable right to receive payment, including a reasonable profit margin upon customer cancellation, for performance completed to date.

Accordingly, we recognize revenue over time as we complete the manufacture of these products.

5 unchanged sentences

Service Revenue :

Our service revenue is derived from supply chain services as well as professional services.

Our service revenue is derived from professional services and supply chain services.

Professional services include solution design, system installation, software automation and managed support services related to high performance computing (“HPC”) and storage systems.

Supply chain services includes procurement, logistics, inventory management, temporary warehousing, kitting and packaging.

Professional services include solution design, system installation, software automation and managed support services

related to high performance computing (“HPC”) and storage systems.

A portion of our product sales include extended warranty and on-site services, subscriptions to our HPC environment, professional services, software and related support.

Agent Services :

We provide certain supply chain services on an agent basis, whereby we procure materials on behalf of our customers and then resell such materials to our customers.

Gross amounts invoiced to customers in connection with these agent services include amounts related to the services performed by us in addition to the cost of the materials procured.

We provide certain supply chain services on an agent basis, whereby we procure materials and services on behalf of our customers and then resell such materials or services to our customers.

Gross amounts invoiced to customers in connection with these agent services include amounts related to the services performed by us in addition to the cost of the materials and services procured.

However, only the amount related to the agent component is recognized as revenue in our results of operations.

We generally recognize revenue for these procurement, logistics and inventory management services upon the completion of such services, which typically occurs at the time of shipment of product to the customer.

Amounts we invoice to customers for cost of materials related to services performed, which remain unpaid as of the end of a reporting period, are included in accounts receivable.

Additionally, cost of materials procured for customers under these agent services, but which remain on hand as of the end of a reporting period, are included in inventories.

Amounts in accounts receivable and inventories impact the determination of net cash provided by (or used in) operations.

Amounts we invoice to customers for the cost of materials and services, which remain unpaid as of the end of a reporting period, are included in accounts receivable.

Additionally, the cost of materials procured for customers under these agent services, but which remain on hand as of the end of a reporting period, are included in inventories.

Amounts in accounts receivable and inventories impact the determination of net cash provided by (used in) operations.

Transaction Price :

18 unchanged sentences

Estimates and judgments are based on historical experience, forecasted events and various other assumptions.

Significant items subject to such estimates and assumptions include business acquisitions, income taxes, inventories, goodwill and intangible assets, property and equipment, revenue recognition and share-based compensation.

Significant items subject to such estimates and assumptions include

business acquisitions and divestitures, income taxes, inventories, goodwill and intangible assets, property and equipment, revenue recognition and share-based compensation.

Actual results could differ from the estimates made by management.

Subsequent Events

Acquisition of Stratus Technologies

On August 29, 2022, SGH completed its previously announced acquisition of all of the outstanding shares of Storm Private Holdings I Ltd., a Cayman Islands exempted company (“Stratus Holding Company” and together with its subsidiaries, “Stratus Technologies”), pursuant to a Share Purchase Agreement (the “Purchase Agreement”), dated as of June 28, 2022.

At the closing of the transaction, SGH paid to the seller a cash purchase price of $ 225 million, subject to certain adjustments.

In addition, the seller has the right to receive, and SGH will be obligated to pay, contingent consideration (if

any) of up to $ 50 million (the “Earnout”) based on the gross profit performance of the Stratus business during the first full 12 fiscal months of Stratus following the closing.

The Earnout, if any, will be payable in cash, ordinary shares of SGH or a mix of cash and SGH Shares, at SGH’s election.

Stratus is a global leader in simplified, protected, and autonomous computing platforms and services in the data center and at the Edge.

For more than 40 years, Stratus has provided high-availability, fault-tolerant computing to Fortune 500 companies and small-to-medium sized businesses enabling them to securely and remotely run critical applications with minimal downtime.

First Supplemental Indenture to Indenture Governing 2.25% Convertible Senior Notes Due 2026

On August 26, 2022, SGH entered into the First Supplemental Indenture (the “First Supplemental Indenture”) to the Indenture, dated February 11, 2020 (the “Indenture”), between SGH and U.S.

Bank National Association, as trustee, governing SGH’s outstanding 2.25 % Convertible Senior Notes due 2026 (the “2026 Notes”).

The First Supplemental Indenture became effective on August 27, 2022.

Pursuant to the First Supplemental Indenture, SGH irrevocably elected (i) to eliminate SGH’s option to elect Physical Settlement (as defined in the Indenture) on any conversion of 2026 Notes that occurs on or after the date of the First Supplemental Indenture and (ii) that, with respect to any Combination Settlement (as defined in the Indenture) for a conversion of the 2026 Notes, the Specified Dollar Amount (as defined in the Indenture) that will be settled in cash per $ 1,000 principal amount of the 2026 Notes shall be no lower than $ 1,000 .

As a result of our election, upon any conversion of our 2026 Notes, we will be required to pay cash in an amount at least equal to the principal portion while continuing to have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

Following the election, only the amounts expected to be settled in excess of the principal portion are considered dilutive in calculating earnings per share under the if-converted method.

Amended Credit Facility

On August 29, 2022, SGH and SMART Modular Technologies, Inc.

entered into an incremental amendment to the Credit Agreement (the “Incremental Amendment,” and together with the Credit Agreement, the “Amended Credit Agreement”).

The Incremental Amendment (i) provides for incremental term loans in an aggregate amount of $ 300 million (the “Incremental 2027 TLA”), which Incremental 2027 TLA is on the same terms as the 2027 TLA , (ii) increases the maximum First Lien Leverage Ratio (as defined in the Amended Credit Agreement) financial covenant from 3.00 :1.00 to 3.25 :1.00 and (iii) increases the aggregate amount of unrestricted cash and permitted investments netted from the definitions of Consolidated First Lien Debt and Consolidated Net Debt under the Amended Credit Agreement from $ 100 million to $ 125 million.

The 2027 TLA, the Incremental 2027 TLA and the 2027 Revolver are referred to together as the “Amended Credit Facility.” The Amended Credit Facility matures on February 7, 2027.

Prepayment of Earnout Note

On August 29, 2022, substantially simultaneously with entering into the Incremental Amendment, we repaid in full the $ 101.8 million outstanding under the Earnout Note.

See “Business Acquisition – LED Business – Contingent Consideration.”

Share Dividend

On January 3, 2022, our Board of Directors declared a share dividend of one ordinary share, $ 0.03 par value per share, for every one outstanding ordinary share owned to shareholders of record as of January 25, 2022.

The dividend was paid on February 1, 2022.

The accompanying consolidated financial statements and notes have been restated and adjusted for the impact of the share dividend.

Divestiture of SMART Brazil

Overview of Transaction

On June 13, 2023, we entered into a Stock Purchase Agreement (the “Brazil Purchase Agreement”), by and among SMART Modular Technologies (LX) S.à.r.l., a société à responsabilité limitée governed by the laws of Grand Duchy of Luxembourg and our wholly owned subsidiary (the “Brazil Seller”), Lexar Europe B.V., a company organized under the laws of The Netherlands (the “Brazil Purchaser”), Shenzhen Longsys Electronics Co., Ltd., a company limited by shares governed by the laws of the People’s Republic of China (“Longsys”), solely with respect to certain provisions therein, Shanghai Intelligent Memory Semiconductor Co., Ltd., a limited liability company governed by the laws of the People’s Republic of China (“Parent Funding Entity”), and solely with respect to certain provisions therein, SGH, for the intended sale of our standards-based modules assembly and test business in Brazil.

The transaction, which was approved by our Board of Directors and the Board of Directors of the Brazil Seller, is expected to close at the end of calendar 2023 or early 2024.

Pursuant to the Brazil Purchase Agreement, among other matters, and subject to the satisfaction or waiver of the conditions set forth therein, the Brazil Seller will sell to the Brazil Purchaser, and the Brazil Purchaser will purchase from the Brazil Seller, 81 % of the Brazil Seller’s right, title and interest in and to the outstanding quotas of SMART Modular Technologies do Brasil – Indústria e Comercio de Componentes Ltda., a sociedade limitada governed by the laws of Brazil (“SMART Brazil”), with the Brazil Seller retaining a 19 % interest in SMART Brazil (the “Retained Interest”).

Pursuant to the terms of, and subject to the conditions specified in, the Brazil Purchase Agreement, upon completion of the transaction, the Brazil Purchaser will pay to the Brazil Seller (based on a total enterprise value of $ 205.0 million for SMART Brazil) consideration consisting of (i) an up front cash purchase price of $ 137.7 million on a cash-free, debt-free basis and subject to certain customary adjustments as set forth in the Brazil Purchase Agreement, (ii) a deferred cash purchase price of $ 28.4 million eighteen months following the closing and (iii) subject to and at the time of exercise of the Put/Call Option (as defined below), an additional cash payment equal to 19 % of the amount of SMART Brazil’s cash at the closing (as calculated pursuant to the Brazil Purchase Agreement) minus the amount of SMART Brazil’s indebtedness at the closing (as calculated pursuant to the Brazil Purchase Agreement).

Pursuant to the Brazil Purchase Agreement, at closing, SMART Brazil, the Brazil Seller, the Brazil Purchaser and Longsys will enter into a Quotaholders Agreement, which will provide the Brazil Seller with a put option to sell the Retained Interest in SMART Brazil (the “Put Option”) during three exercise windows following its fiscal years 2026, 2027 or 2028 (the “Exercise Windows”).

A call option has also been granted to the Brazil Purchaser to require the Brazil Seller to sell the Retained Interest during the Exercise Windows (the “Call Option,” together with the Put Option, the “Put/Call Option”).

The price for the Put/Call Option is based on a 100 % enterprise value of 7.5 x net income for SMART Brazil for the preceding fiscal year at the time of exercise.

The Quotaholders Agreement also provides, among other things, for certain governance and approval rights among the parties thereto.

The closing of the transaction is subject to customary conditions to closing, including, among others, (i) completion of filings for outbound direct investment with the Division of Development and Reform in the China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area Administration and the Division of Finance and Trade Development in the China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area Administration and completion of foreign exchange registration with a qualified bank authorized by the Municipal Administration of Foreign Exchange in Shanghai (the “China Outbound Approvals”) and (ii) approval of the transactions contemplated by the Brazil Purchase Agreement by Longsys’ shareholders (the “Longsys Shareholder Approval”).

The Brazil Purchase Agreement contains customary termination rights, including the right for the Brazil Seller or the Brazil Purchaser to terminate the Brazil Purchase Agreement if the closing shall not have occurred by January 31, 2024.

The Brazil Purchaser shall pay a $ 8.0 million termination fee to the Brazil Seller if the transaction is terminated due to a failure to obtain the China Outbound Approvals or the Longsys Shareholder Approval and other specified circumstances, which termination fee may be increased to $ 12.0 million over time.

Presentation of SMART Brazil Operations

In connection with the proposed sale of an 81 % interest in SMART Brazil, we concluded that the net assets of SMART Brazil met the criteria for classification as held for sale.

In addition, the proposed sale represents a strategic shift that will have a

major effect on our operations and financial results.

As a result, we have presented the results of operations, cash flows and financial position of SMART Brazil as discontinued operations in the accompanying consolidated financial statements and notes for all periods presented.

As of August 25, 2023, we expect the proposed sale of an 81 % interest in SMART Brazil to close within one year and, as a result, we have classified the total assets and total liabilities associated with our SMART Brazil operations as current in the accompany consolidated balance sheets as of August 25, 2023.

The following table presents the assets and liabilities of our SMART Brazil operations:

As of August 25,

2023 August 26,

Cash and cash equivalents $ 44,501 $ 49,737

Accounts receivable, net 17,055 55,321

Inventories 25,877 59,316

Other current assets 17,732 21,907

Total current assets 105,165 186,281

Property and equipment, net 58,321 57,227

Operating lease right-of-use assets 5,213 5,576

Goodwill 20,668 18,888

Other noncurrent assets 34,243 17,454

Total assets 223,610 285,426

Impairment charge related to proposed divestiture of SMART Brazil ( 153,036 ) —

Total assets, net of impairment 70,574 285,426

Accounts payable and accrued expenses 25,867 59,256

Current debt 4,006 3,556

Other current liabilities 1,030 1,501

Total current liabilities 30,903 64,313

Long-term debt 13,689 15,707

Noncurrent operating lease liabilities 4,614 4,764

Deferred tax liabilities 28,564 —

Total liabilities 77,770 84,784

Net assets of discontinued operations $ ( 7,196 ) $ 200,642

Current assets of discontinued operations $ 70,574 $ 186,281

Noncurrent assets of discontinued operations — 99,145

Total assets of discontinued operations 70,574 285,426

Current liabilities of discontinued operations 77,770 64,313

Noncurrent liabilities of discontinued operations — 20,471

Total liabilities of discontinued operations 77,770 84,784

Net assets of discontinued operations $ ( 7,196 ) $ 200,642

A disposal group classified as held for sale shall be measured at the lower of its carrying amount or fair value less costs to sell.

Accordingly, we evaluated the carrying value of the net assets of our SMART Brazil operations (including $ 206.3 million recognized within shareholder’s equity related to the cumulative translation adjustment from our SMART Brazil operations), estimated costs to sell and expected proceeds and concluded the net assets were impaired.

As a result, we recognized an impairment charge of 153.0 million in 2023 to write down the carrying value of the net assets of our SMART Brazil operations.

As of August 25, 2023, we concluded that the outside basis of our Brazil operations inclusive of any withholding taxes should be recognized upon the classification as held for sale.

Accordingly, we recognized withholding taxes on the expected capital gain and deferred tax liabilities of $ 28.6 million in 2023.

The following table presents the results of our SMART Brazil operations, including the impairment charge recognized in 2023 related to the proposed divestiture of SMART Brazil:

Year ended August 25,

2023 August 26,

2022 August 27,

Net sales $ 185,377 $ 423,476 $ 445,613

Cost of sales 184,016 361,301 375,206

Gross profit 1,361 62,175 70,407

Operating expenses:

Research and development 5,887 ( 116 ) ( 10,659 )

Selling, general and administrative 12,509 14,958 11,017

Other operating (income) expense 657 — ( 854 )

Total operating expenses 19,053 14,842 ( 496 )

Operating income (loss) ( 17,692 ) 47,333 70,903

Non-operating (income) expense:

Impairment charge related to proposed divestiture of SMART Brazil 153,036 — —

Interest (income) expense, net ( 4,174 ) ( 3,176 ) 459

Other non-operating (income) expense 996 4,487 207

Total non-operating (income) expense 149,858 1,311 666

Income (loss) before taxes ( 167,550 ) 46,022 70,237

Income tax provision (benefit) 27,834 1,837 5,777

Net income (loss) from discontinued operations $ ( 195,384 ) $ 44,185 $ 64,460

Recently Adopted Accounting Standards

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08 – Business Combinations:

Accounting for Contract Asset and Contract Liabilities from Contracts with Customers , to require that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers .

We adopted ASU 2021-08 in the third quarter of 2022 and the adoption had no impact on our financial statements.

In December 2019, the FASB issued ASU 2019-12 – Income Taxes:

Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of, and simplify GAAP for, other areas of Topic 740 by clarifying and amending existing guidance.

We adopted ASU 2019-12 in the first quarter of 2022 on a prospective basis.

The adoption of this ASU did not have a significant impact on our financial statements.

In June 2016, the FASB issued ASU 2016-13 – Financial Instruments – Credit Losses:

Measurement of Credit Losses on Financial Instruments , which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected.

This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the increases or decreases of expected credit losses that have taken place during the period.

This ASU requires that credit losses of debt securities designated as available-for-sale be recorded through an allowance for credit losses and limits the credit loss to the amount by which fair value is below amortized cost.

We adopted ASU 2016-13 in the first quarter of 2021 under the modified retrospective adoption method.

The adoption of this ASU did not have a significant impact on our financial statements .

Recently Issued Accounting Standards

In August 2020, the FASB issued ASU 2020-06 – Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity:

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06 – Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity:

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract.

This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments.

This ASU is effective for us in the first quarter of 2023 and permits the use of either the modified retrospective or fully retrospective method of transition.

This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives, and requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments.

This ASU was effective for us in the first quarter of 2023 and permitted the use of either the modified retrospective or fully retrospective method of transition.

We adopted ASU 2020-06 in the first quarter of 2023 under the modified retrospective method.

Upon adoption of ASU 2020-06, the previously separated equity component and associated issuance costs for our outstanding 2026 Notes were reclassified from additional capital to long-term debt, thereby eliminating future amortization of the debt discount as interest expense.

Amortization of the debt discount as interest expense was $ 8.1 million, $ 7.5 million and $ 3.9 million in 2022, 2021 and 2020, respectively.

Upon adoption, the previously separated equity component and associated issuance costs for our 2.25 % convertible senior notes due 2026 were reclassified from additional capital to long-term debt, thereby eliminating future amortization of the debt discount as interest expense.

Amortization of the debt discount as interest expense was $ 8.1 million and $ 7.5 million in 2022 and 2021, respectively.

The following table summarizes the effects of adopting ASU 2020-06:

Ending Balance as of Beginning Balance as of

2022 Adoption of ASU 2020-06 August 27,

Balance as of August 26,

Adoption of ASU 2020-06 Beginning Balance as of August 27,

Long-term debt $ 575,682 $ 32,183 $ 607,865

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Following the irrevocable election, only the amounts expected to be settled in excess of the principal portion are considered dilutive in calculating earnings per share under the if-converted method.

See “Subsequent Events – First Supplemental Indenture to Indenture Governing 2.25 % Convertible Senior Notes Due 2026.”

Business Acquisition

On March 1, 2021, pursuant to the previously announced Asset Purchase Agreement, dated October 18, 2020, as amended by the Amendment to Asset Purchase Agreement, dated March 1, 2021 (as amended, the “CreeLED Purchase Agreement”), (i) we acquired the LED business of Cree, Inc., a corporation now known as Wolfspeed, Inc.

(“Cree”), including (a) certain equipment, inventory, intellectual property rights, contracts and real estate comprising Cree’s LED products segment, (b) all of the issued and outstanding equity interests of Cree Huizhou Solid State Lighting Company Limited, a limited liability company organized under the laws of the People’s Republic of China and an indirect wholly owned subsidiary of Cree and

(c) Cree’s 51.0 % ownership interest in Cree Venture LED Company Limited (“Cree Joint Venture”), Cree’s joint venture with San’an Optoelectronics Co., Ltd.

See ”Debt – Convertible Senior Notes – 2026 Notes.”

In October 2021, the FASB issued ASU 2021-08 – Business Combinations:

We adopted ASU 2021-08 in the third quarter of 2022 and the adoption had no impact on our financial statements.

In December 2019, the FASB issued ASU 2019-12 – Income Taxes:

Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of, and simplify GAAP for, other areas of Topic 740 by clarifying and amending existing guidance.

We adopted ASU 2019-12 in the first quarter of 2022 on a prospective basis.

The adoption of this ASU did not have a significant impact on our financial statements.

Business Acquisitions

Stratus Technologies

On August 29, 2022 (the “Stratus Acquisition Date”), we completed the acquisition of Storm Private Holdings I Ltd., a Cayman Islands exempted company (“Stratus Holding Company” and together with its subsidiaries, “Stratus Technologies”), pursuant to the terms of that certain Share Purchase Agreement (the “Stratus Purchase Agreement”), dated as of June 28, 2022, by and among SGH, Stratus Holding Company and Storm Private Investments LP, a Cayman Islands exempted limited partnership (the “Stratus Seller”).

Pursuant to the Stratus Purchase Agreement, among other matters, the Stratus Seller sold to SGH, and SGH purchased from the Stratus Seller, all of the Stratus Seller’s right, title and interest in and to the outstanding equity securities of Stratus Holding Company.

Stratus Technologies is a global leader in simplified, protected and autonomous computing platforms and services in the data center and at the Edge.

For more than 40 years, Stratus Technologies has provided high-availability, fault-tolerant computing to Fortune 500 companies and small-to-medium sized businesses enabling them to securely and remotely run critical applications with minimal downtime.

Stratus operates as part of SGH’s Intelligent Platform Solutions (“IPS”) segment.

The acquisition of Stratus Technologies further enhances SGH’s growth and diversification strategy and complements and expands SGH’s IPS business in data center and edge environments.

Purchase Price :

At the closing of the transaction, we paid the Stratus Seller a cash purchase price of $ 225 million, subject to certain adjustments.

In addition, the Stratus Seller has the right to receive, and we are obligated to pay, contingent consideration of up to $ 50 million (the “Stratus Earnout”) based on the gross profit performance of Stratus Technologies during the first full 12 fiscal months following the closing of the acquisition.

Pursuant to the terms of the Stratus Purchase Agreement, we had the option to settle the Stratus Earnout amount owed to the Stratus Seller in cash, ordinary shares of SGH, or a mix of cash and ordinary shares of SGH.

On June 28, 2023, we provided notice to the Stratus Seller of our election to settle the Stratus Earnout in cash.

Based on the gross profit achieved by Stratus Technologies during the 12 fiscal months following the closing of the acquisition, as of August 25, 2023, current liabilities in the accompanying balance included $ 50.0 million for the expected amount payable for the Stratus Earnout.

Cash paid was utilized, in part, to settle the outstanding debt of Stratus Technologies as of the closing of the transaction and was recognized as a component of consideration transferred.

As a result, the assets acquired and liabilities assumed do not include an assumed liability for the outstanding debt of Stratus Technologies.

The purchase price for Stratus Technologies was as follows:

Cash $ 225,000

Additional payment for net working capital adjustment (1)

Fair value of Stratus Earnout 20,800

(1) Includes $ 14.4 million paid at closing and $ 2.8 million paid in the second quarter of 2023 upon completion of the review of the working capital assets acquired and liabilities assumed.

Contingent Consideration :

The Stratus Earnout was accounted for as contingent consideration.

As of the Stratus Acquisition Date, the fair value of the Stratus Earnout was estimated to be $ 20.8 million and was valued using a Monte Carlo simulation analysis in a risk-neutral framework with assumptions for volatility, market price of risk adjustment, risk-free rate and cost of debt.

The fair value measurement was based on significant inputs, not observable in the market, including forecasted

gross profit, comparable company volatility, discount rate and cost of debt.

The fair value of the Stratus Earnout was estimated based on the Company’s evaluation of the probability and amount of the Stratus Earnout to be achieved based on the expected gross profit of Stratus Technologies, using an estimated gross profit volatility of 33.4 % and a discount rate of 7.3 % as of the Stratus Acquisition Date.

We estimated the fair value of the assets and liabilities of Stratus Technologies as of the Stratus Acquisition Date.

The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed as follows:

Cash and cash equivalents $ 29,174

Accounts receivable 26,685

Inventories 10,890

Other current assets 6,536

Property and equipment 7,292

Operating lease right-of-use assets 9,216

Intangible assets 123,700

Goodwill 125,929

Other noncurrent assets 11,661

Accounts payable and accrued expenses ( 32,656 )

Other current liabilities ( 36,723 )

Noncurrent operating lease liabilities ( 7,067 )

Other noncurrent liabilities ( 11,591 )

Total net assets acquired $ 263,046

The goodwill arising from the acquisition of Stratus Technologies was assigned to our IPS segment.

None of the goodwill recognized is deductible for income tax purposes.

The fair values and useful lives of identifiable intangible assets were as follows:

Amount Estimated

Technology $ 82,000 5

Customer relationships 27,800 8

Trademarks/trade names 10,000 9

In-process research and development 3,900 N/A

• Technology intangible assets were valued using the multi-period excess earnings method based on the discounted cash flow and technology obsolescence rate.

Discounted cash flow requires the use of significant unobservable inputs, including projected revenue, expenses, capital expenditures and other costs, and discount rates calculated based on the cost of equity adjusted for various risks, including the size of the acquiree, industry risk and other risk factors.

• Customer relationship intangible assets were valued using the multi-period excess earnings method, which is the present value of the projected cash flows that are expected to be generated by the existing intangible assets after reduction by an estimated fair rate of return on contributory assets required to generate the customer relationship revenues.

Key assumptions included discounted cash flow, estimated life cycle and customer attrition rates.

• Trademark/trade name intangible assets were valued using the relief from royalty method, which is the discounted cash flow savings accruing to the owner by virtue of the fact that the owner is not required to license the trademarks/trade names from a third party.

Key assumptions included attributable revenue expected from the trademarks/trade names, royalty rates and assumed asset life.

• In-process research and development (“IPR&D”) relates to next generation fault tolerant architecture.

IPR&D is indefinite-lived and will be reviewed for impairment at least annually.

Amortization will commence upon completion of research and development efforts.

IPR&D was valued based on discounted cash flow, which requires the use of significant unobservable inputs, including projected revenue, expenses, capital expenditures and other costs.

Unaudited Pro Forma Financial Information :

The following unaudited pro forma financial information presents SGH’s combined results of operations as if the acquisition of Stratus Technologies had occurred on August 28, 2021.

The unaudited pro forma financial information is based on various adjustments and assumptions and is not necessarily indicative of what SGH’s results of operations actually would have been had the acquisition been completed as of August 28, 2021 or will be for any future periods.

Furthermore, the pro forma financial information does not include adjustments to reflect any potential revenue, synergies or dis-synergies, or cost savings that may be achievable in connection with the acquisition or the associated costs that may be necessary to achieve such revenues, synergies or cost savings.

The following unaudited pro forma financial information for the year ended August 26, 2022 combines the historical results of continuing operations of SGH for the year ended August 26, 2022 and the historical results of operations of Stratus Technologies for the year ended May 29, 2022:

Year ended August 25,

Net income attributable to SGH

Earnings per share:

Acquisition-related transaction expenses are included within selling, general and administrative expenses and were $ 4.8 million and $ 4.6 million in 2023 and 2022, respectively.

For 2023, net sales for Stratus Technologies were $ 172.7 million and net loss was $ 1.2 million, excluding any charges recognized to adjust the Stratus Earnout to its carrying amount as of August 25, 2023.

On March 1, 2021, pursuant to the Asset Purchase Agreement, dated October 18, 2020, as amended by the Amendment to Asset Purchase Agreement, dated March 1, 2021 (as amended, the “CreeLED Purchase Agreement”), (i) we acquired the LED business of Cree, Inc., a corporation now known as Wolfspeed, Inc.

(“San’an”) and (ii) we assumed certain liabilities related to the LED business (collectively, (i) and (ii), the “LED Business”).

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Purchase Price :

The purchase price for the LED Business consisted of (i) a payment of $ 50.0 million in cash, subject to customary adjustments, (ii) an unsecured promissory note issued to Cree by the Company in the amount of $ 125.0 million(“LED Purchase Price Note”), (iii) an earn-out payment of up to $ 125.0 million based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing (“Earnout Period”), with a minimum payment of $ 2.5 million, payable in the form of an unsecured promissory note to be issued by us (“Earnout Note”) and (iv) the assumption of certain liabilities.

The purchase price for the LED Business consisted of (i) a payment of $ 50.0 million in cash, subject to customary adjustments, (ii) an unsecured promissory note issued to Cree by the Company in the amount of $ 125.0 million (the “LED Purchase Price Note”), (iii) an earnout payment of up to $ 125.0 million based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing (the “LED Earnout Period”), with a minimum payment of $ 2.5 million, payable in the form of an unsecured promissory note to be issued by us (the “LED Earnout Note”) and (iv) the assumption of certain liabilities.

The aggregate purchase price was as follows:

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Fair value of LED Purchase Price Note 125,000

Fair value of Earnout Note 28,100

(1) Includes $ 15.3 million paid at closing and $ 7.1 million paid in the fourth quarter of 2021 upon completion of the review of the net working capital assets acquired and liabilities assumed.

Fair value of LED Earnout 28,100

(1) Included $ 15.3 million paid at closing and $ 7.1 million paid in the fourth quarter of 2022 upon completion of the review of the net working capital assets acquired and liabilities assumed.

Contingent Consideration :

The Earnout Note was accounted for as contingent consideration.

The fair value of the Earnout Note was estimated as of the date of acquisition to be $ 28.1 million and was valued using a Monte Carlo simulation analysis in a risk-neutral framework with assumptions for volatility, market price of risk adjustment, risk-free rate and cost of debt.

The LED Earnout Note was accounted for as contingent consideration.

The fair value of the LED Earnout Note was estimated as of the date of acquisition to be $ 28.1 million and was valued using a Monte Carlo simulation analysis in a risk-neutral framework with assumptions for volatility, market price of risk adjustment, risk-free rate and cost of debt.

The fair value measurement was based on significant inputs not observable in the market.

The Earnout Note was revalued each quarter and changes in valuation were reflected in results of operations.

In 2022 and in the second half of 2021, we recorded charges of $ 41.3 million and $ 32.4 million, respectively, to adjust the value of the Earnout Note to its fair value.

The LED Earnout Note was revalued each quarter and changes in valuation were reflected in results of operations.

In 2022 and 2021, we recorded charges of $ 41.3 million and $ 32.4 million, respectively, to adjust the value of the LED Earnout Note to its fair value.

The changes in fair value reflected new information about the probability and timing of meeting the conditions of the revenue and gross profit targets of the LED Business.

Based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing, the final calculated value of the contingent consideration was $ 101.8 million and, in the fourth quarter of 2022, we issued the Earnout Note to Cree for this amount.

On August 29, 2022, subsequent to the end of 2022, we repaid in full the amount outstanding under that Earnout Note.

The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on these valuation analyses.

The valuation of the LED Business assets acquired and liabilities assumed, noncontrolling interest in subsidiary and consideration was as follows:

In the first quarter of 2023, we repaid in full the amount outstanding under the LED Earnout Note.

The purchase price of the LED Business was based on these valuation analyses and was allocated to tangible and intangible assets acquired, liabilities assumed and noncontrolling interest as follows:

Cash and cash equivalents $ 36,721

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Noncontrolling interest in subsidiary ( 7,477 )

Consideration $ 225,498

Total net assets acquired $ 225,498

The fair values and useful lives of the intangible asset acquired was as follows:

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• Technology intangible assets were valued using the multi-period excess earnings method based on the discounted cash flow and technology obsolescence rate.

The discounted cash flow requires the use of significant assumptions, including projected revenue, expenses, capital expenditures and other costs and discount rates calculated based on the cost of equity adjusted for various risks, including the size of the acquiree, industry risk and other risk factors.

The discounted cash flow requires the use of significant assumptions, including projected revenue, expenses, capital expenditures and other costs and discount rates calculated based

on the cost of equity adjusted for various risks, including the size of the acquiree, industry risk and other risk factors.

• Trademarks/trade names intangible assets were valued using the relief from royalty method, which is the discounted cash flow savings accruing to the owner by virtue of the fact that the owner is not required to license the trade names/trademarks from a third party.

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• Order backlog intangible assets represent the value of existing firm purchase orders in place at the time of acquisition and were valued using the discounted cash flow method, which accounts for the expected profit related to the purchase orders.

Unaudited Pro Forma Financial Information :

The following unaudited pro forma financial information presents our combined results of operations as if the acquisition of the LED Business had occurred on August 31, 2019.

The unaudited pro forma financial information is based on various adjustments and assumptions and is not necessarily indicative of what our results of operations actually would have been had the acquisition been completed as of August 31, 2019 or will be for

any future periods.

Furthermore, the pro forma financial information does not include adjustments to reflect any potential revenue, synergies or dis-synergies or cost savings that may be achievable in connection with the acquisition, or the associated costs that may be necessary to achieve such revenues, synergies or cost savings.

The unaudited pro forma financial information for the year ended August 27, 2021 combines our results of operations for the year ended August 27, 2021 (which include the results of the LED Business from the March 1, 2021 acquisition date) and the results of operations of the LED Business for the six months ended December 27, 2020.

The unaudited pro forma financial information for the year ended August 28, 2020 combines our results of operations for the year ended August 28, 2020 and the results of operations of the LED Business for the year ended June 28, 2020.

Year ended August 27,

Cash and Investments

As of August 25, 2023, all of our debt securities, the fair values of which approximated their carrying values, were classified as held to maturity.

Cash, cash equivalents and investments were as follows:

August 25, 2023 As of

August 26, 2022

Net sales $ 1,705,366 $ 1,555,689

Net loss attributable to SGH ( 142,319 ) ( 95,926 )

Earnings (loss) per share:

Basic $ ( 2.93 ) $ ( 2.00 )

Diluted $ ( 2.93 ) $ ( 2.00 )

The unaudited pro forma financial information above reflects the following adjustments:

• Incremental cost of sales related to the estimated fair value of inventories.

• Incremental depreciation expense related to the estimated fair value of property and equipment.

• Incremental amortization expense related to the estimated fair value of identifiable intangible assets.

• Incremental interest expense related to the LED Purchase Price Note and the Earnout Note.

• The impacts to income tax expense as a result of the pro forma adjustments.

In 2021 and 2020 we incurred costs related to the acquisition of $ 5.3 million and $ 1.1 million, respectively, which were included in selling, general and administrative expense.

From March 1, 2021, the acquisition date, to August 27, 2021, revenues for the LED Business were $ 224.6 million and, for the same period, net income for the LED Business was $ 16.3 million, which excludes any expenses recognized to adjust the Earnout Note to its fair value.

Cash and Cash Equivalents

Short-term Investments

Cash and Cash Equivalents

Cash and cash equivalents $ 321,937 $ — $ 299,509

Money market funds 43,626 — 13,819

Treasury securities — 25,251 —

$ 365,563 $ 25,251 $ 313,328

As of August 25,

4 unchanged sentences

$ 174,977 $ 263,768

As of August 26, 2022 and August 27, 2021, 6 % and 11 %, respectively, of total inventories were inventories owned and held under our logistics services.

As of August 25, 2023 and August 26, 2022, 8 % of total inventories were inventories owned and held under our logistics services.

Property and Equipment

9 unchanged sentences

Depreciation expense for property and equipment was $ 26.5 million, $ 22.9 million and $ 14.7 million in 2023, 2022 and 2021, respectively.

Change in Accounting Estimate :

During the first quarter of 2023, we completed an assessment of the estimated useful lives of our manufacturing equipment.

Based on that assessment, we revised the estimated useful lives from five years to eight years as of the beginning of the first quarter of 2023.

The change reduced our non-cash depreciation expense for 2023 by $ 3.7 million, which resulted in aggregate reductions of $ 3.5 million in cost of sales and research and development expense and a reduction of $ 0.2 million in the cost of our inventories as of the end of 2023.

These reductions benefited net income for 2023 by $ 2.8 million, or $ 0.05 per share.

Intangible Assets and Goodwill

5 unchanged sentences

Trademarks/trade names 28,300 ( 13,257 ) 19,200 ( 9,771 )

Order backlog — — 3,800 ( 2,571 )

$ 242,001 $ ( 81,816 ) $ 138,294 $ ( 60,482 )

6 unchanged sentences

Amortization expense is expected to be $ 40.1 million for 2024, $ 35.6 million for 2025, $ 30.2 million for 2026, $ 29.5 million for 2027, $ 13.9 million for 2028 and $ 10.9 million thereafter.

Goodwill of our Memory Solutions segment decreased in 2022 by $ 0.2 million and increased in 2021 by $ 0.3 million from translation adjustments.

Goodwill of our Intelligent Platform Solutions segment increased in 2023, primarily due to the addition of $ 125.9 million in connection with our acquisition of Stratus Technologies.

See “Business Acquisitions – Stratus Technologies.” During 2023, we assessed goodwill associated with our Penguin Edge business within our IPS segment and concluded it was partially impaired.

As a result, we recognized aggregate impairment charges of $ 19.1 million in 2023 to impair the carrying value of goodwill.

See “Impairment of Penguin Edge Goodwill.”

Impairment of Penguin Edge Goodwill

During the second quarter of 2023, we initiated a plan within our IPS segment pursuant to which we intend to wind down manufacturing and discontinue the sale of legacy products offered through our Penguin Edge business by approximately the end of calendar 2024.

In connection therewith, we performed a quantitative assessment of the fair value of goodwill using an income approach with assumptions that are considered Level 3 measurements and concluded that the carrying value of the Penguin Edge reporting unit goodwill exceeded its fair value.

The fair value of the Penguin Edge reporting unit was determined primarily by discounting estimated future cash flows, which were determined based on revenue and expense assumptions over the next two years, at a weighted-average cost of capital of 14.5 %.

As a result, we recorded charges of $ 17.6 million and $ 1.5 million in the second and fourth quarters of 2023, respectively, to impair the carrying value of Penguin Edge goodwill.

We concluded that long-lived assets other than goodwill, primarily consisting of customer relationship intangible assets, had fair values in excess of their carrying amounts, and accordingly, recorded no impairments of such assets.

These assets will continue to be amortized over their remaining useful lives through the date of our anticipated completion of wind-down activities.

At each reporting date through the end of the wind-down period, we will reassess the estimated remaining cash flows of the Penguin Edge business.

We currently anticipate that the remaining goodwill of the Penguin Edge reporting unit of $ 16.1 million as of August 25, 2023 may become further impaired in future periods.

Accounts Payable and Accrued Expenses

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2023 August 26,

2027 TLA $ 269,304 $ —

Convertible Senior Notes 213,023 203,992

Amended 2027 TLA $ 544,943 $ 269,304

2029 Notes 146,886 —

2026 Notes 98,609 213,023

LED Earnout Note — 101,824

LED Purchase Price Note — 125,000

ABL Credit Agreement — 25,000

Other 19,263 11,846

790,438 584,151

1 unchanged sentence

Long-term debt $ 754,820 $ 575,682

Reference Rate Reform

In July 2017, the Financial Conduct Authority (which regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the SOFR as its preferred alternative to LIBOR in derivatives and other financial contracts.

As of January 1, 2022, the Financial Conduct Authority ceased the publication of the one-week and two-month USD LIBOR settings.

The remaining U.S.

dollar LIBOR settings will continue to be published until June 30, 2023.

For each of our debt instruments that provide for interest based on LIBOR, the SOFR, as published by the Federal Reserve Bank of New York, is listed as the alternative index to replace LIBOR if a different alternative index is not agreed to prior such cessation of the LIBOR rate.

Credit Facility

On February 7, 2022, SGH and SMART Modular Technologies, Inc.

entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks that provides for (i) a term loan credit facility in an aggregate principal amount of $ 275.0 million (the “2027 TLA”) and (ii) a revolving credit facility in an aggregate principal amount of $ 250.0 million (the “2027 Revolver,” and together with the 2027 TLA, the “Credit Facility”), in each case, maturing on February 7, 2027 (subject to certain earlier “springing maturity” dates upon certain conditions specified in the Credit Agreement).

The Credit Agreement provides that up to $ 35.0 million of the 2027 Revolver is available for issuances of letters of credit.

Issuance costs incurred in connection with the Credit Facility were $ 9.1 million and were allocated to the 2027 TLA and 2027 Revolver on a pro rata basis.

Unamortized issuances costs allocated to the 2027 TLA are amortized using the effective interest method and are included as a reduction of the principal amount of the 2027 TLA within debt.

Unamortized issuances costs allocated to the 2027 Revolver are amortized using the straight-line method and are included in other current and noncurrent assets.

Principal payments under the 2027 TLA are due quarterly equal to 2.5 % per annum of the initial aggregate principal amount for the first four quarters beginning in May 2022, with such per annum percentage equal to 5.0 %, 5.0 %, 5.0 % and 7.5 % per annum in years two through five, respectively, with the balance due at maturity.

(collectively, the “Borrowers”) entered into a credit agreement (the “Original Credit Agreement”) with a syndicate of banks and Citizens Bank, N.A., as administrative agent (the “Administrative Agent”) that provided for (i) a term loan credit facility in an aggregate principal amount of $ 275.0 million (the “2027 TLA”) and (ii) a revolving credit facility in an aggregate principal amount of $ 250.0 million (the “2027 Revolver”), in each case, maturing on February 7, 2027 (subject to certain earlier “springing maturity” dates upon certain conditions specified in the Original Credit Agreement).

The Original Credit Agreement provides that up to $ 35.0 million of the 2027 Revolver is available for issuances of letters of credit.

Incremental Amendment :

On August 29, 2022, the Borrowers entered into the First Amendment (the “Incremental Amendment”;

the Original Credit Agreement as amended by the Incremental Amendment, the “Amended Credit Agreement”) with and among the lenders party thereto and the Administrative Agent.

The Incremental Amendment amended the Original Credit Agreement and (i) provides for incremental term loans under the Amended Credit Agreement in an aggregate amount of $ 300.0 million (the “Incremental Term Loans” and together with the 2027 TLA, the “Amended 2027 TLA”) which Incremental Term Loans are on the same terms as the term loans incurred under the Original Credit Agreement, (ii) increases the maximum First Lien Leverage Ratio (as defined in the Amended Credit Agreement) financial covenant from 3.00 :1.00 to 3.25 :1.00 and (iii) increases the aggregate amount of unrestricted cash and permitted investments netted from the definitions of Consolidated First Lien Debt and Consolidated Net Debt under the Amended Credit Agreement from $ 100 million to $ 125 million.

Substantially simultaneously with entering into the Incremental Amendment, the Borrowers applied a portion of the proceeds of the Incremental Term Loans to (i) finance a portion of the purchase price for the acquisition of Stratus Technologies and (ii) prepay in full the $ 101.8 million outstanding under the LED Earnout Note.

In connection with our prepayment of the LED Earnout Note, we recognized a gain of $ 0.8 million in the first quarter of 2023, which is included in other non-operating (income) expense in the accompanying consolidated statements of operations.

Interest and fees :

Loans under the Credit Agreement bear interest at a rate per annum equal to either, at our option, a term SOFR or a base rate, in each case plus an applicable margin.

The applicable margin for 2027 TLA is 2.00 % per annum with respect to term SOFR borrowings, and 1.00 % per annum with respect to base rate borrowings.

As of August 26, 2022, the interest rate applicable to the principal amount outstanding under the 2027 TLA was 3.55 % per annum.

As of August 26, 2022, there was $ 273.3 million of 2027 TLA

principal amount outstanding and unamortized issuance costs were $ 4.0 million and, as of August 26, 2022, the 2027 TLA had an effective interest rate of 3.99 %.

2027 Revolver :

The applicable margin for revolving loans varies based on our Total Leverage Ratio (as defined in the Credit Agreement) and ranges from 1.25 % to 3.00 % per annum with respect to term SOFR borrowings and from 0.25 % to 2.00 % per annum with respect to base rate borrowings.

In addition, we are required to pay a quarterly unused commitment fee at an initial rate of 0.25 %, which may increase up to a rate of 0.35 % based on certain Total Leverage Ratio levels specified in the Credit Agreement.

As of August 26, 2022, there were no amounts outstanding under the 2027 Revolver and unamortized issuance costs were $ 4.1 million.

The Credit Agreement is jointly and severally guaranteed on a senior basis by certain subsidiaries of SGH organized in the United States and Cayman Islands.

In addition, the Credit Agreement is secured by a pledge of the capital stock of, or equity interests in, certain subsidiaries of SGH organized in the United States and the Cayman Islands and by substantially all of the assets of certain subsidiaries of SGH organized in the United States and the Cayman Islands.

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our subsidiaries to:

Loans under the Amended Credit Agreement bear interest at a rate per annum equal to either, at our option, a term SOFR or a base rate, in each case plus an applicable margin.

The applicable margin for our 2027 Revolver varies based on our Total Leverage Ratio (as defined in the Amended Credit Agreement) and ranges from 1.25 % to 3.00 % per annum with respect to term SOFR borrowings and from 0.25 % to 2.00 %

per annum with respect to base rate borrowings.

The Amended Credit Agreement is jointly and severally guaranteed on a senior basis by certain subsidiaries of SGH organized in the United States and Cayman Islands.

In addition, the Amended Credit Agreement is secured by a pledge of the capital stock of, or equity interests in, certain subsidiaries of SGH organized in the United States and the Cayman Islands and by substantially all of the assets of certain subsidiaries of SGH organized in the United States and the Cayman Islands.

The Amended Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our subsidiaries to:

incur additional indebtedness;

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engage in certain transactions with affiliates;

amend material agreements governing our subordinated debt and fundamentally change our business.

The Credit Agreement also includes the following financial maintenance covenants tested on the final day of each fiscal quarter:

a First Lien Leverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00;

amend material agreements governing our subordinated debt;

and fundamentally change our business.

The Amended Credit Agreement also includes the following financial maintenance covenants tested on the final day of each fiscal quarter:

a First Lien Leverage Ratio (as defined in the Amended Credit Agreement) of 3.25 to 1.00;

a Total Leverage Ratio of 5.00 to 1.00;

provided, that commencing after the eighth full fiscal quarter after the Effective Date, such Total Leverage Ratio level will instead be 4.50 to 1.00;

provided further, that commencing after the eighth full fiscal quarter after the Effective Date, in connection with any Material Acquisition (as defined in the Credit Agreement), at the election of the Borrowers, the maximum Total Leverage Ratio for the next four testing periods after such Material Acquisition has been consummated will be automatically increased by 0.50 to 1.00 above the otherwise permitted Total Leverage Ratio for the applicable fiscal quarter (not to exceed 5.00 to 1.00 in any event);

provided further, that (x) no more than two such elections may be made during the term of the Credit Agreement and (y) following the first such election, no subsequent election may be made unless the Total Leverage Ratio has been less than or equal to 5.00 to 1.00 as of the last day of at least two consecutive Test Periods (as defined in the Credit Agreement) following the expiration of the first increase;

an Interest Coverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00.

For purposes of calculating the First Lien Leverage Ratio and the Total Leverage Ratio, the consolidated debt of the Company and its Restricted Subsidiaries (as defined in the Credit Agreement) is reduced by up to $ 100 million of the aggregate amount of unrestricted cash and Permitted Investments (as defined in the Credit Agreement) of the Company and its Restricted Subsidiaries.

Substantially simultaneously with entering into the Credit Agreement, we used a portion of the proceeds of the Credit Facility to pay in full all borrowings and terminated all commitments under (i) our ABL Credit Agreement, dated as of December 23, 2020, (ii) our Amended Credit Agreement, dated as of March 6, 2020 and (iii) the LED Purchase Price Note, dated as of March 1, 2021.

In connection therewith, we used an aggregate of $ 160.4 million to pay principal and interest outstanding under these agreements and recorded charges of $ 0.7 million in other non-operating expense to write off certain unamortized issuance costs.

provided further, that commencing after the eighth full fiscal quarter after the Effective Date, in connection with any Material Acquisition (as defined in the Amended Credit Agreement), at the election of the Borrowers, the maximum Total Leverage Ratio for the next four testing periods after such Material Acquisition has been consummated will be automatically increased by 0.50 to 1.00 above the otherwise permitted Total Leverage Ratio for the applicable fiscal quarter (not to exceed 5.00 to 1.00 in any event);

provided further, that (x) no more than two such elections may be made during the term of the Amended Credit Agreement and (y) following the first such election, no subsequent election may be made unless the Total Leverage Ratio has been less than or equal to 5.00 to 1.00 as of the last day of at least two consecutive Test Periods (as defined in the Amended Credit Agreement) following the expiration of the first increase;

an Interest Coverage Ratio (as defined in the Amended Credit Agreement) of 3.00 to 1.00.

For purposes of calculating the First Lien Leverage Ratio and the Total Leverage Ratio, the consolidated debt of the Company and its Restricted Subsidiaries (as defined in the Amended Credit Agreement) is reduced by up to $ 125.0 million of the aggregate amount of unrestricted cash and Permitted Investments (as defined in the Amended Credit Agreement) of the Company and its Restricted Subsidiaries.

As of August 25, 2023, there was $ 551.6 million of principal amount outstanding under the Amended 2027 TLA, unamortized issuance costs were $ 6.7 million and the effective interest rate was 8.22 %.

As of August 25, 2023, there were no amounts outstanding under the 2027 Revolver and unamortized issuance costs were $ 3.2 million.

Convertible Senior Notes

In February 2020, we issued $ 250.0 million in aggregate principal amount of 2.25 % convertible senior notes due 2026 (the “2026 Notes”).

The 2026 Notes are general unsecured obligations, bear interest at an annual rate of 2.25 % per year, payable semi-annually on February 15 and August 15, and mature on February 15, 2026, unless earlier converted,

redeemed or repurchased.

Convertible Senior Notes Exchange

On January 18, 2023, SGH entered into separate, privately negotiated exchange agreements with a limited number of holders of its 2.25 % Convertible Senior Notes due 2026 (the “2026 Notes”) to exchange $ 150.0 million principal amount of the 2026 Notes for (i) $ 150.0 million in aggregate principal amount of new 2.00 % Convertible Senior Notes due 2029 (the “2029 Notes”) and (ii) an aggregate of $ 15.6 million in cash, with such cash payment representing $ 14.1 million of premium paid for the 2026 Notes in excess of par value and $ 1.5 million of accrued and unpaid interest on the 2026 Notes (collectively, the “Exchange Transactions”).

The 2029 Notes were issued pursuant to, and are governed by, an indenture (the “2029 Indenture”), dated as of January 23, 2023, between the Company and U.S.

Bank Trust Company, National Association, as trustee.

Transactions involving contemporaneous exchanges between the same debtor and creditor in connection with the issuance of a new debt obligation and satisfaction of an existing debt obligation are accounted for as debt extinguishments if the debt instruments have substantially different terms.

An exchange is deemed to have substantially different terms if:

• The present value of the remaining cash flows of the old instrument differs by more than 10% of the present value of the cash flows of the new instrument, or

• The change in the fair value of the conversion option immediately before and after the exchange is greater than 10% of the carrying value of the debt instrument immediately prior to the exchange.

We concluded that the exchanged 2026 Notes and the 2029 Notes had substantially different terms, and accordingly, we accounted for the Exchange Transactions as the extinguishment of the 2026 Notes and the issuance of the 2029 Notes.

As a result, we recognized an extinguishment loss in the second quarter of 2023, included in other non-operating expense, of $ 16.7 million consisting of $ 14.1 million of premium paid to extinguish the 2026 Notes and $ 2.5 million for the write-off of unamortized issuance costs.

The 2029 Notes are senior, unsecured obligations of the Company and are equal in right of payment with our existing and future senior, unsecured indebtedness, senior in right of payment to our existing and future indebtedness that is expressly subordinated to the 2029 Notes and effectively subordinated to our existing and future senior, secured indebtedness, to the extent of the value of the collateral securing that indebtedness.

Our 2026 Notes and 2029 Notes are structurally subordinated to all other existing and future indebtedness and other liabilities, including trade payables and (to the extent the Company is not a holder thereof) preferred equity, if any, of our subsidiaries.

The 2029 Notes bear interest at a rate of 2.00 % per annum on the principal amount thereof, payable semi-annually in arrears on February 1 and August 1 of each year, beginning on August 1, 2023, to the noteholders of record of the 2029 Notes as of the close of business on the immediately preceding January 15 and July 15, respectively.

The 2029 Notes will mature on February 1, 2029 (the “2029 Maturity Date”), unless earlier converted, redeemed or repurchased.

The 2029 Notes are convertible into cash or a combination of cash and the Company’s ordinary shares, $ 0.03 par value per share, at our election.

The initial conversion rate of the 2029 Notes is 47.1059 ordinary shares per $ 1,000 principal amount of the 2029 Notes, which represents an initial conversion price of approximately $ 21.23 per ordinary share.

The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the 2029 Indenture.

In connection with any conversion of the 2029 Notes, we are required to pay the principal amount in cash and have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

Conversion Rights :

Holders of the 2029 Notes may convert them under the following circumstances:

during any fiscal quarter commencing after the fiscal quarter ended on May 26, 2023 (and only during such fiscal quarter) if the last reported sale price per ordinary share exceeds 130 % of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter;

during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “2029 Notes Measurement Period”) in which the trading price per $1,000 principal amount of notes for each trading day of the 2029 Notes Measurement Period was less than 98 % of the product of the last reported sale price per ordinary share on such trading day and the conversion rate on such trading day;

upon the occurrence of certain corporate events or distributions on our ordinary shares, as provided in the 2029 Indenture;

if we call the 2029 Notes for redemption;

on or after August 1, 2028 until the close of business on the second scheduled trading day immediately before the 2029 Maturity Date.

Upon the occurrence of a “make-whole fundamental change” (as defined in the 2029 Indenture), we will in certain circumstances increase the conversion rate for a specified period of time.

In addition, upon the occurrence of a “fundamental change” (as defined in the 2029 Indenture), holders of the 2029 Notes may require us to repurchase their 2029 Notes at a cash repurchase price equal to the principal amount of the 2029 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The definition of fundamental change

includes certain business combination transactions involving the Company and certain de-listing events with respect to our ordinary shares.

Cash Redemption at Our Option :

We have the right to redeem the 2029 Notes, in whole or in part, at our option at any time, and from time to time, on or after February 6, 2026 and on or before the 40th scheduled trading day immediately before the 2029 Maturity Date, at a cash redemption price equal to the principal amount of the 2029 Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported per share sale price of our ordinary shares exceeds 130 % of the conversion price on (i) each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the redemption notice date for such redemption and (ii) the trading day immediately before the date we send such notice.

In addition, we have the right to redeem all, but not less than all, of the 2029 Notes if certain changes in tax law occur.

Calling any 2029 Note for redemption will constitute a make-whole fundamental change with respect to such note, in which case the conversion rate applicable to the conversion of such note will be increased in certain circumstances if it is converted after it is called for redemption.

In February 2020, we issued $ 250.0 million in aggregate principal amount of 2026 Notes.

The 2026 Notes are governed by an indenture (the “2026 Indenture”) between us and U.S.

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The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the 2026 Indenture.

On January 18, 2023, we exchanged $ 150.0 million principal amount of 2026 Notes for $ 150.0 million principal amount of new 2029 Notes.

As a result, as of August 25, 2023, $ 100.0 million in aggregate principal amount of 2026 Notes remain outstanding.

See “Convertible Senior Notes Exchange.”

First Supplemental Indenture to Indenture Governing the 2026 Notes :

On August 26, 2022, SGH entered into the First Supplemental Indenture (the “2026 First Supplemental Indenture”) to the 2026 Indenture governing the 2026 Notes.

The 2026 First Supplemental Indenture became effective on August 27, 2022.

Pursuant to the 2026 First Supplemental Indenture, SGH irrevocably elected (i) to eliminate SGH’s option to elect Physical Settlement (as defined in the 2026 Indenture) on any conversion of the 2026 Notes that occurs on or after the date of the 2026 First Supplemental Indenture and (ii) with respect to any Combination Settlement (as defined in the 2026 Indenture) for a conversion of the 2026 Notes, the Specified Dollar Amount (as defined in the 2026 Indenture) that will be settled in cash per $ 1,000 principal amount of the 2026 Notes shall be no lower than $ 1,000 .

As a result of our election, upon any conversion of the 2026 Notes, we will be required to pay cash in an amount at least equal to the principal portion while continuing to have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

Following the irrevocable election, only the amounts expected to be settled in excess of the principal portion are considered in calculating diluted earnings per share under the if-converted method.

Conversion Rights :

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during any fiscal quarter commencing after the fiscal quarter ended on May 28, 2020 (and only during such fiscal quarter) if the last reported sale price per ordinary share exceeds 130 % of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter;

during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “Measurement Period”) in which the trading price per $1,000 principal amount of notes for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price per ordinary share on such trading day and the conversion rate on such trading day;

during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “2026 Notes Measurement Period”) in which the trading price per $1,000 principal amount of notes for each trading day of the 2026 Notes Measurement Period was less than 98 % of the product of the last reported sale price per ordinary share on such trading day and the conversion rate on such trading day;

on or after August 15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date;

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the 2026 Notes are called for redemption.

Upon conversion, we will pay or deliver, as applicable, cash, ordinary shares or a combination of cash and ordinary shares at our election.

Through 2022, it was our intent to settle the principal amount of the 2026 Notes in cash upon any conversion.

As a result, only the amounts payable in excess of the principal amounts upon conversion of the 2026 Notes are considered in diluted earnings per share under the treasury stock method.

On August 26, 2022, we made an irrevocable election, effective August 27, 2022, under the indenture to require the principal portion of our 2026 Notes to be settled in cash and any conversion consideration in excess of the principal portion in cash and/or ordinary shares at our option upon conversion.

Following the irrevocable election, only the amounts expected to be settled in excess of the principal portion are considered dilutive in calculating earnings per share under the if-converted method.

See “Subsequent Events – First Supplemental Indenture to Indenture Governing 2.25 % Convertible Senior Notes Due 2026.”

Upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture), we will in certain circumstances increase the conversion rate for a specified period of time.

In addition, upon the occurrence of a “fundamental change” (as defined in the Indenture), holders of the 2026 Notes may require us to repurchase their notes at a cash repurchase price equal to the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest.

If any taxes imposed or levied by or on behalf of the Cayman Islands (or certain other jurisdictions described in the Indenture) are required to be withheld or deducted from any payments or deliveries made under or with respect to the 2026 Notes, then, subject to certain exceptions, we will pay or deliver to the holder of each note such additional amounts as may be necessary to ensure that the net amount received by the beneficial owner of such note after such withholding or deduction (and after withholding or deducting any taxes on the additional amounts) will equal the amounts that would have been received by such beneficial owner had no such withholding or deduction been required.

Cash Redemption at Our Option :

We have the right to redeem the 2026 Notes, in whole or in part, at our option at any time, and from time to time, from February 21, 2023 through the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest.

We have the right to redeem the 2026 Notes, in whole or in part, at our option at any time, and from time to time, from February 21, 2023 through the 40th scheduled trading day immediately before the

maturity date, at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest.

However, the repurchase right is only applicable if the last reported per share sale price of our ordinary shares exceeds 130 % of the conversion price on each of at least twenty trading days during the thirty consecutive trading days ending on, and including, the trading day immediately before the redemption notice date for such redemption.

In connection with the issuance of the 2026 Notes, we separated the par value of the 2026 Notes into liability and equity components.

The liability component of $ 197.5 million was calculated by using a discount rate of 6.53 %, which was our borrowing rate on the date of the issuance of the 2026 Notes for a similar debt instrument without the conversion feature.

The equity component of $ 52.5 million, representing the conversion option, was determined by deducting the liability component from the par value of the 2026 Notes.

The equity component of the 2026 Notes is included in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification, which we reassess every reporting period.

The difference between the debt recorded at issuance and its principal amount is accreted using the effective interest method through interest expense over the term of the 2026 Notes.

Debt issuance costs for the 2026 Notes were $ 8.0 million, consisting of initial purchasers’ discount and other issuance costs, and were allocated to the liability and equity components using the same proportions as the allocation of the proceeds from the 2026 Notes.

Transaction costs attributable to the liability component were $ 6.3 million and are netted with the debt balance and amortized to interest expense over the term of the 2026 Notes.

Transaction costs attributable to the equity component were $ 1.7 million and are netted with the equity component in additional paid-in-capital.

Unamortized debt discount and issuance costs are amortized over the term of the 2026 Notes using the effective interest rate method.

As of August 26, 2022 and August 27, 2021, the effective interest rate was 7.06 %.

Interest expense for the 2026 Notes consisted of 2.25 % contractual stated interest and amortization of discount and issuance costs and included of the following:

Convertible Senior Note Interest

Unamortized debt discount and issuance costs are amortized over the terms of our 2026 Notes and 2029 Notes using the effective interest method.

As of August 25, 2023 and August 26, 2022, the effective interest rate for our 2026 Notes was 2.83 % and 7.06 %, respectively.

As of August 25, 2023, the effective interest rate for our 2029 Notes was 2.40 %.

Aggregate interest expense for our convertible notes consisted of contractual stated interest and amortization of discount and issuance costs and included the following:

Year ended August 25,

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$ 6,557 $ 14,640 $ 14,028

As of both August 26, 2022 and August 27, 2021, the carrying amount of the equity components of the 2026 Notes, which are included in additional paid-in-capital, was $ 50.8 million.

As of the beginning of the first quarter of 2023, we adopted ASU 2020-06.

In connection therewith, we reclassified $ 50.8 million from additional paid-in-capital to long-term debt.

See “Recently Issued Accounting Standards.”

As of August 26, 2022, the carrying amount of the equity components of the 2026 Notes, which was included in additional paid-in-capital, was $ 50.8 million.

As of the beginning of 2023, we adopted ASU 2020-06.

In connection therewith, we reclassified $ 32.2 million from additional paid-in-capital to long-term debt and $ 18.6 million from additional paid-in-capital to retained earnings.

See “Recently Adopted Accounting Standards.”

LED Earnout Note

Part of our consideration for the acquisition of the LED Business in March 2021 was the possibility of an earn-out payment of up to $ 125 million based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing, with a minimum payment of $ 2.5 million.

Part of our consideration for the acquisition of the LED Business in March 2021 was the possibility of an earnout payment of up to $ 125 million based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing, with a minimum payment of $ 2.5 million.

In the third quarter of 2022, we issued an unsecured promissory note to Cree for this earnout in the amount of $ 101.8 million.

The Earnout Note bore interest at LIBOR plus 3.0 %, payable quarterly, and was scheduled to mature on March 27, 2025.

On August 29, 2022, subsequent to the end of our fiscal year 2022, we repaid in full the amount outstanding under that Earnout Note.

The LED Earnout Note bore interest at LIBOR plus 3.0 %, payable quarterly, and was scheduled to mature on March 27, 2025.

In the first quarter of 2023, and substantially simultaneously with entering into the Incremental Amendment, we repaid in full the $ 101.8 million outstanding under the LED Earnout Note.

In connection with our prepayment of the LED Earnout Note, we recognized a gain of $ 0.8 million in the first quarter of 2023, which is included in other non-operating income in the accompanying consolidated statements of operations.

LED Purchase Price Note

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In the second quarter of 2022, we repaid in full the LED Purchase Price Note.

Asset-Based Lending Credit Agreement

In the second quarter of 2022, we used a portion of the proceeds of the Credit Facility to pay in full all borrowings and terminated all commitments under our ABL Credit Agreement, dated as of December 23, 2020.

Through one of our Brazil subsidiaries, we are party to a credit facility with the Funding Authority for Studies and Projects (“FINEP”), an organization of the Brazilian federal government under the Ministry of Science, Technology and Innovation devoted to funding science and technology in Brazil.

The facility provides for borrowings of up to R$ 102.2 million (or $ 19.7 million) for investments in technology innovation projects used in infrastructure and research and development conducted in Brazil as well as for the acquisition of equipment.

The facility bears interest bears interest at 2.8 % per annum and provides for unused commitment fees of 0.1 % per month.

The agreement also provides for initial administration fees of 1.09 %, deducted from each advance of funds.

Amounts outstanding and available under the facility are guaranteed by two unrelated parties, subject to a guarantee fee of 1.5 % per annum.

The facility includes customary conditions and can be terminated in the event of a change of effective control.

Amounts borrowed under the agreement are due in monthly installments of principal and interest beginning in June 2022, with the final payment due in December 2027.

On December 30, 2020 and July 19, 2022, we borrowed R$ 61.3 million (or $ 11.8 million) and R$ 40.9 million (or $ 7.9 million), respectively, under the agreement and, as of August 26, 2022, the outstanding balance was $ 19.3 million.

Maturities of Debt

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Cash flows used for operating activities in 2023, 2022 and 2021 included payments for operating leases of $ 7.7 million, $ 9.0 million and $ 6.5 million, respectively.

Noncash acquisitions of right-of-use assets were $ 47.6 million, $ 24.5 million and $ 8.8 million in 2022, 2021 and 2020, respectively.

As of August 26, 2022 and August 27, 2021, the weighted-average remaining lease term for our operating leases was 10.9 years and 6.1 years, respectively.

Acquisitions of right-of-use assets were $ 10.8 million, $ 47.6 million and $ 22.3 million in 2023, 2022 and 2021, respectively.

As of August 25, 2023 and August 26, 2022, the weighted-average remaining lease term for our operating leases was 10.5 years and 11.3 years, respectively, and the weighted-average discount rate was 6.0 % and 5.9 %, respectively.

Certain of our operating leases include one or more options to extend the lease term for periods from two to five years .

In determining the present value of our operating lease liabilities, we have assumed we will not extend any lease terms.

As of August 26, 2022 and August 27, 2021, the weighted-average discount rate for our operating leases was 6.1 % and 6.7 %, respectively.

Minimum payments of lease liabilities as of August 26, 2022 were as follows:

As of August 25, 2023, minimum payments of lease liabilities were as follows:

2024 $ 13,537

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Contingencies

From time to time, we are involved in legal matters that arise in the normal course of business.

From time to time, we may be involved in legal matters that arise in the normal course of business.

Litigation in general, and intellectual property, employment and shareholder litigation in particular, can be expensive and disruptive to normal business operations.

Moreover, the results of complex legal proceedings are difficult to predict.

Additionally, from time to time, we are a party in the normal course of business to a variety of agreements pursuant to which we may be obligated to indemnify another party.

It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.

Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations or financial condition.

We regularly review contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made.

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The share repurchase authorization has no expiration date but may be suspended or terminated by the Board of Directors at any time.

In 2022, we repurchased an aggregate of 2.6 million shares for $ 50.0 million under the repurchase authorization.

As of August 26, 2022, these repurchased shares were held in treasury.

In 2023 and 2022, we repurchased 0.5 million and 2.6 million shares, respectively, for $ 8.4 million and $ 50.0 million, respectively, under the repurchase authorization.

Other Share Repurchases

Ordinary shares withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are treated as ordinary share repurchases.

We repurchased 506 thousand, 240 thousand and 153 thousand ordinary shares as payment of withholding taxes for $ 10.9 million, $ 7.2 million and $ 4.2 million in 2023, 2022 and 2021, respectively.

As of August 26, 2022, these repurchased shares were held in treasury.

In addition, in January 2021, we repurchased an aggregate of 1.1 million ordinary shares for $ 44.3 million from Silver Lake Partners III Cayman (AIV III), L.P., Silver Lake Technology Investors III Cayman, L.P., Silver Lake Sumeru Fund Cayman, L.P.

In connection with the Exchange Transactions in the second quarter of 2023, we repurchased 326 thousand ordinary shares for $ 5.4 million.

In January 2021, we repurchased an aggregate of 1.1 million ordinary shares for $ 44.3 million from Silver Lake Partners III Cayman (AIV III), L.P., Silver Lake Technology Investors III Cayman, L.P., Silver Lake Sumeru Fund Cayman, L.P.

and Silver Lake Technology Investors Sumeru Cayman, L.P.

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The transaction closed on January 15, 2021.

As of August 26, 2022, these repurchased shares were held in treasury.

In connection with the offering of the our 2026 Notes in February 2020, we entered into capped call transactions (“Capped Calls”), at arms-length, which have initial strike prices of approximately $ 20.30 per share, subject to certain adjustments, corresponding to the initial conversion price of the 2026 Notes, and initial cap prices of $ 27.07 per share, which are subject to certain adjustments.

2029 Capped Calls

On January 18, 2023, in connection with the offering of the 2029 Notes, we entered into privately negotiated capped call transactions (the “2029 Capped Calls”).

The 2029 Capped Calls cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2029 Notes, the aggregate number of ordinary shares that initially underlie the 2029 Notes and are expected generally to reduce potential dilution to our ordinary shares upon any conversion of the 2029 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2029 Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price.

The cap price of the 2029 Capped Calls is initially $ 29.1375 per share, which represented a premium of 75 % over the last reported sale price of our ordinary shares on January 18, 2023.

The cost of the 2029 Capped Calls, which are considered capital transactions, was $ 15.1 million and was recognized as a decrease to additional paid-in capital in the second quarter of 2023.

The 2029 Capped Calls are separate transactions, each between the Company and the counterparties to the 2029 Capped Calls, and are not part of the terms of the 2029 Notes and do not affect any holder’s rights under the 2029 Notes or the 2029 Indenture.

Holders of the 2029 Notes do not have any rights with respect to the 2029 Capped Calls.

2026 Capped Calls

In February 2020, in connection with the offering of the our 2026 Notes, we entered into capped call transactions (“2026 Capped Calls”), at arms-length, which have initial strike prices of approximately $ 20.30 per share, subject to certain adjustments, corresponding to the initial conversion price of the 2026 Notes, and initial cap prices of $ 27.07 per share, which are subject to certain adjustments.

The 2026 Capped Calls cover, subject to anti-dilution adjustments, approximately 12.3 million ordinary shares of the Company and are generally intended to reduce the potential economic dilution upon any conversion of 2026 Notes and/or offset any potential cash payments we may be required to make in excess of the principal amount of converted 2026 Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price.

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In addition, the 2026 Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the 2026 Capped Calls, including insolvency filings and hedging disruptions.

The Capped Calls were originally classified as noncurrent derivative assets because they could be settled only in cash.

In March 2020, our shareholders approved a proposal to amend our memorandum and articles of association to permit us to purchase or otherwise acquire our ordinary shares.

The amendment also enabled us to utilize shares or cash, or any combination thereof, to settle the capped call transactions, which resulted in the reclassification of the noncurrent derivative assets to additional paid in capital in an amount equal to the $ 14.1 million fair value of the Capped Calls as of March 30, 2020.

In connection therewith, we recognized a loss of $ 7.7 million in 2020 in other non-operating expense from the revaluation of the Capped Calls.

As part of the Exchange Transactions, we entered into agreements with a number of counterparties to settle a portion of the 2026 Capped Calls in a notional amount corresponding to the amount of the 2026 Notes that were exchanged.

The value received in connection with the settlement of a portion of the 2026 Capped Calls was $ 10.8 million and was recognized as an increase in additional paid-in capital in the second quarter of 2023.

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component for 2023 was as follows:

Gains (Losses)

on Derivative

Gains (Losses)

As of August 26, 2022 $ ( 221,655 ) $ — $ — $ ( 221,655 )

Other comprehensive income (loss) before reclassifications 15,686 112 5 15,803

Reclassifications out of accumulated other comprehensive income — ( 112 ) — ( 112 )

Other comprehensive income (loss) 15,686 — 5 15,691

As of August 25, 2023 $ ( 205,969 ) $ — $ 5 $ ( 205,964 )

Noncontrolling Interest in Subsidiary

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The 49 % ownership interest held by San’an is classified as noncontrolling interest.

In the second quarter of 2022, the Cree Joint Venture distributed an aggregate of $ 7.7 million to its partners, including $ 3.9 million to SGH and $ 3.8 million to San’an.

Noncontrolling interest increased by $ 2.0 million and $ 1.2 million in 2022 and 2021, respectively, for San’an’s share of net income from the Cree Joint Venture.

Remaining cash and other assets of the Cree Joint Venture are generally not available for use by us in our other operations.

Government Incentives

Brazil Financial Credits

Through our Brazil subsidiaries, we participate in two programs (“Brazil Incentive Programs”), pursuant to which the Brazilian government incentivizes the manufacture and sale of certain information technology and consumer electronics products within Brazil.

The programs include 1) Lei da Informática – Processo Produtivo Básico Program (also known as Informatics Law – Basic Productive Process Program) (“IT Law/PPB”) and 2) Programa de Apoio ao Desenvolvimento Tecnológico da Indústria de Semicondutores (also known as Program of Support of the Development of the Semiconductor Industry) (“PADIS”).

In January 2022, the Brazilian government approved an extension to PADIS.

The financial credits available through PADIS are set to expire in December 2026, while the financial credits through IT Law/PPB are set to expire in December 2029.

The Brazil Incentive Programs provide for reduced import and other transaction-related taxes for certain

procurement, manufacturing and sales activities.

In exchange, we must invest in certain research and development activities related to semiconductors and IT solutions in aggregate amounts that exceed a specified percentage of our gross revenues recognized in connection with sales in Brazil, excluding exports and sales to customers located at the Manaus Free Trade Zone.

Accordingly, financial credits earned in connection with the Brazil Incentive Programs are reflected as a reduction of research and development expense.

Financial credits available under the Brazil Incentive Programs are subject to limitations, which range from approximately 11 % to 14 % of gross revenues recognized for sales in Brazil.

Pursuant to the Brazil Incentive Programs, we recognized aggregate financial credits, reflected as a reduction of research and development expense, of $ 17.3 million, $ 30.0 million and $ 6.4 million in 2022, 2021 and 2020, respectively.

Financial credits earned under the Brazil Incentive Programs may be refunded in cash or used to offset liabilities for Brazil federal taxes.

As of August 26, 2022 and August 27, 2021, earned but unused financial credits were $ 18.7 million and $ 19.8 million, respectively.

Financial credits earned but unused as of August 26, 2022 can be utilized through August 2026.

Cash and other assets of the Cree Joint Venture are generally not available for use by us in our other operations.

Fair Value Measurements

Cash and cash equivalents as of August 26, 2022 and August 27, 2021 included money market funds of $ 13.8 million and $ 2.7 million, respectively, which were valued based on Level 1 measurements using quoted prices in active markets for identical assets.

Fair value measurements of other assets and liabilities were as follows:

As of August 25, 2023 As of August 26, 2022

Fair Value Carrying Value Fair Value Carrying Value

Derivative financial instrument assets $ — $ — $ 883 $ 883

Derivative financial instrument liabilities $ 605 $ 605 $ 50 $ 50

2027 TLA 273,281 269,304 — —

Convertible Senior Notes 290,223 213,023 335,668 203,992

Amended 2027 TLA $ 551,648 $ 544,943 $ 273,281 $ 269,304

2029 Notes 195,426 146,886 — —

2026 Notes 131,864 98,609 290,223 213,023

LED Earnout Note — — 96,412 101,824

LED Purchase Price Note — — 125,000 125,000

ABL Credit Agreement — — 25,000 25,000

Debt – other 17,855 19,263 10,702 11,846

Acquisition-related contingent consideration — — 60,500 60,500

The fair values of our derivative financial instruments, as measured on a recurring basis, were based on Level 2 measurements, including market-based observable inputs of currency exchange spot and forward rates, interest rates and credit-risk spreads.

The fair value of our Convertible Senior Notes (excluding the value of the equity component of our convertible notes), as measured on a non-recurring basis, was determined based on Level 2 measurements, including the trading price of the convertible notes.

The fair values of our 2027 TLA, LED Earnout Note, LED Purchase Price Note, ABL Credit Agreement and other debt, as measured on a non-recurring basis, were estimated based on Level 2 measurements, including discounted cash flows and interest rates based on similar debt issued by parties with credit ratings similar to ours.

Acquisition-related contingent consideration related to our acquisition of the LED Business and was included in noncurrent liabilities.

The fair value as of August 27, 2021, measured on a recurring basis, was based on Level 3 measurements, which included significant inputs not observable in the market.

The fair value was estimated using a Monte Carlo simulation analysis in a risk-neutral framework with assumptions for volatility, market price of risk adjustment, risk-free rate and cost of debt.

Assumptions used in the determination of fair value also included estimates of future revenue and gross profit of the LED Business.

Derivative Instruments

We use currency forward contracts to mitigate our exposure of certain monetary assets and liabilities from changes in currency exchange rates.

Realized and unrealized gains and losses from derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating (income) expense.

In 2022 and 2021, we recognized net realized losses of $ 2.4 million and $ 3.4 million, respectively, and in 2020, we recognized net realized gains of $ 11.3 million from changes in the fair value of non-designated forward contracts.

In 2022, we recognized net unrealized losses of $ 0.8 million, and in 2021 and 2020, we recognized net unrealized gains of $ 1.9 million and $ 0.1 million, respectively, from changes in the fair value of non-designated forward contracts.

Our Amended and Restated 2017 Share Incentive Plan (as amended, the “2017 Plan”) provides for the issuance of equity awards to our employees, directors and consultants.

The fair values of the Amended 2027 TLA and LED Earnout Note, as measured on a non-recurring basis, were estimated based on Level 2 measurements, including discounted cash flows and interest rates based on similar debt issued by parties with credit ratings similar to ours.

The fair values of the 2029 Notes and the 2026 Notes, as measured on a non-recurring basis, was determined based on Level 2 measurements, including the trading prices of the 2029 Notes and the 2026 Notes.

As of August 25, 2023, the carrying value of the Stratus Earnout of $ 50.0 million approximated its fair value.

Our Amended and Restated 2017 Share Incentive Plan (the “2017 Plan”) provides for the issuance of equity awards to our employees, directors and consultants.

Such awards include both incentive and non-qualified options, share appreciation rights, restricted share awards (“RSAs”), restricted share units (“RSUs”) and performance-based awards, such as performance-based restricted stock awards (“PRSAs”) and performance-based restricted share units (“PSUs”).

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Options and RSUs generally vest over a period of four years , and options generally have a ten -year term.

The disclosures related to our restricted awards, share options and employee share purchase plan include both our continuing and discontinued operations.

Restricted Share Awards and Restricted Share Units Awards (“Restricted Awards”)

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Outstanding as of August 25, 2023 4,905 $ 19.53 $ 117,327

Restricted Award activity was as follows:

Year ended August 25,

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Restricted Awards include grants with service, performance and/or market conditions with restrictions that generally lapse after a three - to four-year service period.

Awards with market conditions are based on either the Company’s share price or

the Company’s total shareholder return (“TSR”) relative to companies included in a market index.

Awards with market conditions are based on either the Company’s share price or the Company’s total shareholder return (“TSR”) relative to companies included in a market index.

For awards with market conditions, the number of shares that will vest will vary between 0 % and 200 % of target amounts, depending upon the Company’s achievement level over the specified performance period.

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Exercisable as of August 25, 2023 773 $ 12.61 4.83 $ 8,741

Share option activity was as follows (no share options were granted in 2023 or 2022):

Year ended August 27,

2021 August 28,

Share options granted 500

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As of August 25, 2023, total aggregate unrecognized compensation costs for unvested options was $ 1.2 million, which was expected to be recognized over a weighted-average period of 0.9 years.

In March 2018, we granted two performance-based options that contained a stock market index as a benchmark for performance (“Market-Based Options”).

Share-based compensation expense for these options is recognized over the requisite service period by tranche.

The exercisability of Market-Based Options will depend upon the 30 -trading day rolling average closing price of our ordinary shares.

If the target price is not achieved by the end of 4th or 7th anniversary of the respective grant date, the options will expire.

The fair value of Market-Based Options was determined by using a Monte Carlo simulation analysis with the following assumptions:

expected term of 1.10 - 4.00 years, expected volatility of 46.29 %, risk-free interest rate of 2.75 % and no expected dividends.

One of the Market-Based Options was cancelled in November 2019, resulting in an additional $ 2.0 million share-based compensation expense recorded in the first quarter of 2020.

In August 2020, we modified the terms of the remaining Market-Based Option to remove one of the service conditions to allow the continuation of vesting of the unvested options subject to the remaining service condition.

The modification resulted in an updated fair value using a Monte Carlo simulation analysis with the following assumptions:

expected volatility of 56.07 % and risk-free interest rate of 0.34 %.

The modification of this Market-Based Option, as well as a time-based option also granted in March 2018, resulted in the reversal of $ 2.3 million share-based compensation expense in the fourth quarter of 2020.

Employee Share Purchase Plan

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Share-Based Compensation Expense

Share-based compensation expense for our continuing operations was as follows:

Year ended August 25,

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$ 39,228 $ 37,284 $ 30,961

Income tax benefits related to the tax deductions for share-based awards are recognized only upon the settlement of the related share-based awards.

Income tax benefits for share-based awards were $ 6.7 million in 2023 and were de minimis in 2022 and 2021.

The increase in tax benefit recognized in 2023 was due to the release of the U.S.

federal and state valuation allowance on share-based compensation deferred tax assets.

Employee Savings and Retirement Plan

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Net Sales and Gross Billings

Net sales by products and services and gross amounts billed for services, including logistics services in which we act as an agent for our customers, were as follows:

We provide certain logistics services on an agent basis, whereby we procure materials and services on behalf of our customers and then resell such materials and services to our customers.

Our materials logistics business includes procurement, logistics, inventory management, temporary warehousing, kitting and/or packaging services.

While we take title to inventory under such arrangements, control of such inventory does not transfer to us as we do not, at any point, have the ability to direct the use, and thereby obtain the benefits of, the inventory.

Gross amounts invoiced to customers in connection with these agent services include amounts related to the services performed by us in addition to the cost of the materials and services procured.

However, only the amount related to the agent component is recognized as revenue in our results of operations.

The cost of materials and services invoiced to our customers under these arrangements, but not recognized as revenue or cost of sales in our results of operations, were as follows:

Year ended August 25,

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2022 August 27,

Products and professional services $ 1,755,883 $ 1,465,765 $ 1,090,173

Logistics services 63,469 35,377 32,204

$ 1,819,352 $ 1,501,142 $ 1,122,377

Gross billings in connection with logistics services:

Logistics services $ 63,469 $ 35,377 $ 32,204

Cost of materials (1)

1,601,289 751,985 604,698

$ 1,664,758 $ 787,362 $ 636,902

(1) Included in gross billings are amounts billed to customers for the cost of materials procured in an agent capacity in connection with our logistics services business, which includes procurement, logistics, inventory management, temporary warehousing, kitting and/or packaging services.

Cost of materials and services invoiced in connection with logistics services $ 765,796 $ 1,601,289 $ 751,985

Sales to related parties were de minimus in 2023 and 2022 and were $ 76.5 million in 2021 .

Customer Contract Balances

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Contract assets (1)

$ 1,322 $ 4,247

Contract liabilities:

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(1) Contract assets are included in other current assets.

(2) Contract liabilities are included in other current liabilities and noncurrent liabilities based on the timing of when our customer is expected to take control of the asset or receive the benefit of the service.

(2) Contract liabilities are included in other current and noncurrent liabilities based on the timing of when our customer is expected to take control of the asset or receive the benefit of the service.

(3) Deferred revenue includes $ 10.9 million and $ 23.3 million as of August 25, 2023 and August 26, 2022, respectively, related to contracts that contain termination rights.

Contract assets represent amounts recognized as revenue for which we do not have the unconditional right to consideration.

Contract assets as of August 26, 2022 related to amounts expected to be invoiced during the next 12 months.

As of August 25, 2023, there were no contract assets remaining to be invoiced from August 26, 2022.

Deferred revenue related to amounts received from customers in advance of satisfying performance obligations.

Deferred revenue represents amounts received from customers in advance of satisfying performance obligations.

As of August 25, 2023, we expect to recognize revenue of $ 48.1 million of the balance of $ 69.3 million in the next 12 months and the remaining amount thereafter.

In 2023, we recognized revenue of $ 30.0 million from satisfying performance obligations related to amounts included in deferred revenue as of August 26, 2022.

Customer advances represent amounts received from customers for advance payments to secure product and services.

Customer advances represent amounts received from customers for advance payments to secure product.

In 2023, we recognized revenue of $ 24.0 million from satisfying performance obligations related to amounts included in customer advances as of August 26, 2022.

As of August 25, 2023 and August 26, 2022, other current liabilities included $ 12.5 million and $ 15.4 million, respectively, for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.

Other Operating (Income) Expense

In 2023, we initiated plans that included workforce reductions and the elimination of certain projects across our businesses.

In connection therewith, we recorded restructure charges of $ 7.0 million in 2023, primarily for employee severance costs and other benefits as well as lease impairment charges.

We anticipate that these activities will continue into future quarters and anticipate recording additional restructure charges.

As of August 25, 2023, $ 1.4 million remained unpaid, which is expected to be paid in 2024.

Other Non-operating (Income) Expense

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2022 August 27,

Foreign currency losses $ 4,728 $ 719 $ 3,408

Loss on extinguishment of debt 653 — 6,822

Loss from remeasurement of Capped Calls — — 7,719

Loss (gain) on extinguishment of debt $ 15,924 $ 653 $ —

Loss (gain) on disposition of assets ( 2,986 ) 213 17

Other ( 1,101 ) ( 516 ) ( 599 )

$ 11,837 $ 350 $ ( 582 )

Foreign currency losses relate primarily to our Brazil operating subsidiaries.

In the second quarter of 2020, we used $ 208.7 million from the net proceeds from the offering of the 2026 Notes to repay in full our then-outstanding term loans, including the payment of accrued interest, premiums, related fees and expenses.

Related unamortized debt discounts and issuance costs of $ 4.6 million were charged to operations in connection with the extinguishment.

As a result, we recognized a loss on the extinguishment of debt of $ 6.6 million.

In the third quarter of 2020, we restructured a credit agreement and recognized debt extinguishment losses of $ 0.2 million.

The loss from remeasurement of our Capped Calls resulted from the reclassification of the Capped Calls from a noncurrent derivative asset to additional paid in capital in an amount equal to their fair value as of March 30, 2020.

See “Equity.”

Our income tax provision (benefit) consisted of the following:

Year ended August 26,

In the second quarter of 2023, we recognized a loss in connection with the extinguishment of $ 150.0 million of our 2026 Notes.

See “Debt – Convertible Senior Notes – Convertible Senior Notes Exchange.”

Income (loss) before provision for income taxes consisted of the following:

2023 August 26,

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$ 20,118 $ 12,405 $ ( 28,326 )

Foreign 76,098 66,298 22,480

( 59,631 ) 30,076 ( 3,939 )

$ ( 39,513 ) $ 42,481 $ ( 32,265 )

Income tax provision (benefit) consisted of the following:

2023 August 26,

2022 August 27,

Income tax provision (benefit):

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( 63,291 ) ( 11 ) ( 1,954 )

Income tax provision $ 19,911 $ 15,466 $ 10,503

Income tax provision (benefit) $ ( 49,203 ) $ 18,074 $ 9,689

In applying the statutory tax rate in the effective income tax rate reconciliation, we used the U.S.

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Year ended August 25, 2023

2022 August 27,

2021 August 28,

August 26, 2022 August 27, 2021

Statutory tax rate $ ( 8,298 ) 21.0 % $ 8,921 21.0 % $ ( 6,776 ) 21.0 %

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State income tax, net of federal benefit 2,793 ( 7.1 ) % 1,693 4.0 % ( 353 ) 1.1 %

Goodwill impairment 2,876 ( 7.3 ) % — — % — — %

Tax on uncertain tax positions 5,679 ( 14.4 ) % 95 0.2 % 55 ( 0.2 ) %

Share-based compensation ( 538 ) 1.4 % ( 2,681 ) ( 6.3 ) % ( 1,422 ) 4.4 %

Change in valuation allowance ( 69,789 ) 176.6 % 3,113 7.3 % 10,233 ( 31.7 ) %

Non-deductible expenses (non-taxable income) 2,151 ( 5.4 ) % 3,422 8.1 % ( 50 ) 0.2 %

Foreign tax incentives ( 11.1 ) % ( 26.9 ) % ( 14.0 ) %

Foreign withholding tax 3,371 ( 8.5 ) % 2,368 5.6 % 1,493 ( 4.6 ) %

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Effective tax rate $ ( 49,203 ) 124.5 % $ 18,074 42.5 % $ 9,689 ( 30.0 ) %

For 2023, the primary difference between the statutory tax rate and the effective tax rate was due to a release of the U.S.

federal and state valuation allowance.

The effective tax rate benefit from the valuation allowance release is offset with detriments associated with losses generated in jurisdictions with rates lower than the U.S.

statutory tax rate, increases in reserves for uncertain tax provisions, foreign withholding taxes and book goodwill impairment with no tax basis.

Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes as well as carryforwards.

Net deferred tax assets are included in other noncurrent assets and consisted of the following:

Net deferred tax assets consisted of the following:

As of August 25,

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Accruals and allowances $ 15,063 $ 18,442

Deferred revenue 1,913 2,179

Share-based compensation 3,159 6,073

Research and other tax credit carryforwards 5,759 9,686

Capitalized research and development (1)

Operating lease liabilities 17,671 13,405

Tax amortizable goodwill 16,040 17,561

Net operating loss carryforwards 23,723 29,834

Interest carryforward 22,355 —

Loss carryforwards 10,474 22,422

Gross deferred tax assets 105,022 89,768

Valuation allowance ( 2,663 ) ( 52,267 )

Deferred tax assets, net of valuation allowance 40,639 35,668

Net deferred tax assets 102,359 37,501

Deferred tax liabilities:

Right-of-use assets 12,693 7,280

Operating right-of-use assets 15,650 12,693

Property and equipment 11,846 15,357

Intangible assets 417 8,348

Deferred tax liabilities 34,900 31,001

Other liabilities 1,152 —

Gross deferred tax liabilities 29,065 36,398

Net deferred tax assets $ 73,294 $ 1,103

Deferred tax assets $ 74,085 $ 4,576

Deferred tax liabilities (included in other noncurrent liabilities) 791 3,473

Net deferred tax assets $ 73,294 $ 1,103

(1) As required by the 2017 Tax Cuts and Jobs Act, effective for the period ended August 25, 2023, our research and development expenditures were capitalized and amortized, which resulted in substantially higher cash taxes for 2023 with an equal amount of deferred tax benefit.

We regularly assess the recoverability of our deferred tax assets under ASC Topic 740.

We assess available positive and negative evidence to estimate whether we will generate sufficient future taxable income to use our existing deferred tax assets.

We have no carryback ability, and therefore we must rely on future taxable income, including tax planning strategies and future reversals of taxable temporary differences, to support their realizability.

In our assessment for the period ended August 25, 2023, we concluded that it was more likely than not that all deferred tax assets related to U.S.

federal ordinary income and states, with the exception of certain acquired state tax attributes, will be realizable.

In reaching the conclusion that deferred tax assets related to U.S.

federal and states will be realizable, we considered, among other things, three significant pieces of positive evidence occurring during the year ended August 25, 2023:

(1) achieving three-year cumulative earnings, (2) recent use of deferred tax assets including available tax attribute carryforwards and (3) forecasted growth and profitability.

Therefore, in the year ended August 25, 2023 we released $ 69.8 million of valuation allowance.

We continue to maintain a valuation allowance against certain state tax attributes due to expected annual limitations on utilization which causes uncertainty regarding the realizability of these deferred tax assets.

We will continue to monitor the need for a valuation allowance against our remaining deferred tax assets.

As of August 25, 2023, we had U.S.

federal and state net operating loss carryforwards of $ 32.1 million and $ 41.9 million, respectively.

Federal net operating loss carryforwards of $ 71.2 million will expire in 2028 through 2038, if not utilized, and the remaining $ 15.7 million is indefinite lived.

The state net operating loss carryforwards will expire in 2024 through 2040.

In addition, as of August 26, 2022, we have U.S.

If not utilized, the federal net operating loss carryforwards will begin to expire in 2025 and the state net operating loss carryforwards will begin to expire in 2028.

In addition, we had U.S.

federal and state research and development credit carryforwards of $ 17.5 million and $ 5.4 million, respectively, and $ 2.1 million of foreign tax credit carryforwards.

Federal and state carryforwards prior to 2018 are subject to an annual limitation, under the provisions of Section 382 of the Internal Revenue Code of 1986.

Section 382 provides an annual limitation on net operating loss and credit carryforwards following an ownership change.

Any unused annual limitation is carried forward and added to the limitation in the subsequent year.

We have foreign net operating loss carryforwards of $ 20.0 million, of which $ 16.2 million will expire in 2024 through 2025 and the remaining $ 3.8 million is indefinite lived.

If not utilized, the federal research and foreign tax credits will begin to expire in 2032.

If not utilized, $ 2.0 million of the state credits will begin to expire in 2029, while $ 3.4 million of state credits do not expire.

In addition, we had Section 163(j) interest expense carryforwards of $ 101.0 million from the acquisition of Stratus, which do not expire.

Lastly, we had net operating loss carryforwards in Hong Kong of $ 18.6 million which does not expire.

federal and state carryforwards are subject to an annual limitation under the provisions of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”).

Further, under Section 382 of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards to offset its post-change taxable income may be limited.

In general, an “ownership change” will occur if there is a cumulative change in our ownership by certain “5-percent shareholders” (including groups of shareholders) that exceeds 50 percentage points over a rolling three-year period.

Similar rules may apply under state tax laws.

Our net operating loss, tax credit and section 163(j) interest expense carryforwards are subject to limitations per Sections 382 and 383 of the Code.

We have experienced ownership changes in the past, and we may experience ownership changes in the future, as a result of future transactions in our ordinary shares, some changes of which may be outside our control.

As a result, our ability to use our pre-change net operating loss, tax credit and section 163(j) interest expense carryforwards to offset post-change U.S.

federal and state taxable income may be subject to additional limitations.

Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, (“Tax Act”), as modified in 2020 by the Coronavirus Aid, Relief, and the Economic Security Act (“CARES Act”) changed the federal rules governing net operating loss carryforwards.

For net operating loss carryforwards arising in tax years beginning after December 31, 2017, the Tax Act limits a taxpayer’s ability to utilize such carryforwards to 80% of taxable income beginning after December 31, 2020.

In addition, net operating loss carryforwards arising in tax years ending after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited, with the exception of carrybacks reinstated by the CARES Act.

Net operating loss carryforwards generated before January 1, 2018 will not be subject to the Tax Act’s taxable income limitation and will continue to have a twenty-year carryforward period.

Nevertheless, our net operating loss carryforwards and other tax assets could expire before utilization and could be subject to limitations.

Activity related to our deferred tax valuation allowance was as follows:

Balance at Beginning of Year Charged (Credited)

to Operations Charged to Other Accounts Balance at End of Year

Deferred tax valuation allowance:

Balance at Beginning of Period Charged (Credited)

to Operations Charged

Business Acquisitions Balance at

Year ended August 27, 2021 $ 38,921 $ 10,233 $ — $ — $ 49,154

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Year ended August 25, 2023 52,267 ( 69,789 ) ( 4,073 ) 24,258 2,663

Our valuation allowance on deferred tax assets primarily relates to our U.S.

net operating loss carryforwards and tax credit carryforwards and Netherlands tax loss carryforward.

The increase in valuation allowance of $ 3.1 million in 2022 is primarily attributable to the valuation allowance on deferred tax assets related to the LED Business subsequent to the date of acquisition.

We intend to maintain a valuation allowance until sufficient positive evidence exists to support the realization of such deferred tax assets.

The undistributed foreign earnings would not be included in U.S.

taxable income because the U.S.

subsidiaries are not direct or indirect shareholders of these foreign subsidiaries.

SGH, a Cayman Islands entity, is the indirect holding company for which the Cayman Islands do not assess income taxes.

The foreign country withholding taxes on undistributed foreign earnings would have an insignificant impact on our consolidated results if it were to be distributed to SGH due to foreign tax laws and rulings.

Effective February 1, 2011, SMART Brazil began to participate in PADIS.

This program is specifically designed to promote the development of the local semiconductor industry.

The Brazilian government has approved multiple applications for different products by SMART Brazil for certain beneficial tax treatment under the PADIS incentive.

This beneficial tax treatment includes a reduction in the Brazil statutory income tax rate from 34 % to 9 % on taxable income for the Brazilian semiconductor operations of SMART Brazil.

We have operations in Malaysia, where we have tax incentive arrangements for our pioneer status activities and our global supply chain business.

The statutory tax rate for Malaysia is 24 %.

(1) During the period ended August 25, 2023, SMART Embedded Computing B.V.

entered liquidation, resulting in the existing Netherlands, NOL carryforwards being considered to have a remote likelihood of being utilized.

Accordingly, a deferred tax asset of $ 4.1 million was written off and the related full valuation allowance was released.

We choose to maintain flexibility to pull excess cash from all jurisdictions where needed, except the U.S.

group, to manage debt balances.

Provisions have been made for deferred income taxes on undistributed earnings of foreign subsidiaries to the extent that dividend payments by such foreign subsidiaries are expected to result in additional tax liability, which is primarily related to foreign withholding taxes which are not individually or cumulatively significant.

We have operations in Malaysia, where we have tax incentive arrangements for our pioneer status activities and our global supply chain operations.

The statutory rate for Malaysia is 24 %.

These arrangements are scheduled to expire in August 2028 and are subject to certain conditions, for which we have complied in 2023, 2022 and 2021.

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Beginning unrecognized tax benefits $ 18,920 $ 17,454 $ 16,514

Acquired balances 871 — —

Increases related to prior year tax provisions 6,271 — —

Decreases related to prior year tax provisions ( 212 ) ( 397 ) —

Increases related to current year tax provisions 4,248 1,678 1,337

Decreases related to prior year tax provisions ( 3,468 ) ( 212 ) ( 397 )

Lapse of statute of limitation ( 1,239 ) — —

Ending unrecognized tax benefits $ 25,603 $ 18,920 $ 17,454

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In addition, tax returns that remain open to examination in non-U.S.

subsidiaries, including Malaysia, Brazil, Luxembourg, United Kingdom, Hong Kong and China, vary by country.

believe that adequate amounts of taxes and related interest and penalties have been provided, and any adjustments as a result of examinations are not expected to materially adversely affect our business, results of operations or financial condition.

subsidiaries, including Malaysia, Brazil, Luxembourg, Ireland, Japan, Hong Kong and China, vary by country.

We believe that adequate amounts of taxes and related interest and penalties have been provided and any adjustments as a result of examinations are not expected to materially adversely affect our business, results of operations or financial condition.

Earnings Per Share

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2022 August 27,

Net income (loss) from continuing operations $ 7,858 $ 22,372 $ ( 43,150 )

Net income (loss) from discontinued operations ( 195,384 ) 44,185 64,460

Net income (loss) attributable to SGH – Basic and Diluted ( 187,526 ) 66,557 21,310

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Weighted-average shares outstanding – Diluted 51,322 54,443 48,558

Earnings (loss) per share:

Basic $ 1.35 $ 0.44 $ ( 0.02 )

Diluted $ 1.22 $ 0.41 $ ( 0.02 )

Basic earnings (loss) per share:

Continuing operations $ 0.16 $ 0.45 $ ( 0.89 )

Discontinued operations ( 3.94 ) 0.90 1.33

$ ( 3.78 ) $ 1.35 $ 0.44

Diluted earnings (loss) per share:

Continuing operations $ 0.15 $ 0.41 $ ( 0.89 )

Discontinued operations ( 3.80 ) 0.81 1.33

$ ( 3.65 ) $ 1.22 $ 0.44

Below are unweighted potentially dilutive shares that were not included in the computation of diluted earnings per share because to do so would have been antidilutive:

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Equity plans 2,238 329 5,380

Convertible notes — — 12,313

329 5,380 21,682

We have the option to pay cash, issue shares or a combination thereof for the aggregate amount due upon any conversion of our 2026 Notes.

Through 2022, it was our intent to settle the principal amount of the 2026 Notes in cash upon any conversion.

As a result, only the amounts payable in excess of the principal amounts upon conversion of the 2026 Notes are considered in diluted earnings per share under the treasury stock method.

Following the irrevocable election, only the amounts expected to be settled in excess of the principal portion are considered dilutive in calculating earnings per share under the if-converted method.

See “Subsequent Events – First Supplemental Indenture to Indenture Governing 2.25 % Convertible Senior Notes Due 2026.” The 2026 Notes are dilutive when the average share price of the Company’s ordinary shares for a reporting period exceeds the conversion price of the 2026 Notes of $ 20.30 per share.

Upon any conversion of our 2026 Notes or 2029 Notes, we will be required to pay cash in an amount at least equal to the principal portion and have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

As a result, only the amounts settled in excess of the principal portion are considered in calculating diluted earnings per share.

Segment and Other Information

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Our Memory Solutions group, under our SMART Modular brand, provides high performance and reliable memory solutions through the design, development and advanced packaging of leading-edge to extended lifecycle products.

These specialty products are tailored to meet customer-specific requirements across networking and communications, enterprise storage, computing, including desktop, notebook and server applications, smartphones and other vertical markets.

These specialty products are tailored to meet customer-specific requirements across networking and communications, enterprise storage and computing, including server applications and other vertical markets.

These products are marketed to OEMs and to commercial and government customers.

The Memory Solutions group also offers SMART Supply Chain Services, which provides

customized, integrated supply chain services to enable our customers to better manage supply chain planning and execution, reduce costs and increase productivity.

• Intelligent Platform Solutions (“IPS”) :

Our IPS group, under our Penguin Solutions brand, consists of two major product lines – Penguin Computing and Penguin Edge.

Penguin Computing offers specialized platform solutions for high-performance computing, artificial intelligence, machine learning and advanced modeling for technology research.

We provide these leading-edge solutions to customers in the government, hyperscale, energy, financial services and education markets.

Penguin Edge offers solutions for embedded and wireless applications, specializing in high-reliability products for a wide range of customers in government, telecommunications, health care, smart city, network edge and industrial applications.

The Memory Solutions group also offers SMART Supply Chain Services, which provides customized, integrated supply chain services to enable our customers to better manage supply chain planning and execution, reduce costs and increase productivity.

• Intelligent Platform Solutions :

Our IPS group, under our Penguin Solutions and newly acquired Stratus Technologies brands, offers specialized platform solutions and services for high-performance computing, artificial intelligence, machine learning, advanced modeling and the internet of things that span the continuum of edge, core and cloud.

Our solutions are designed specifically for customers across multiple markets, including government, hyperscale, energy, financial services, health care, education and others.

• LED Solutions :

Our LED Solutions group, under our Cree LED brand, offers a broad portfolio of application-optimized LEDs focused on improving on lumen density, intensity, efficacy, optical control and reliability.

Backed by expert design assistance and superior sales support, our LED products enable our customers to develop and market LED-based products for general lighting, video screens and specialty lighting applications.

Our LED Solutions is comprised of the LED Business we acquired from Cree, Inc.

on March 1, 2021.

Our LED Solutions group, under our CreeLED brand, offers a broad portfolio of application-optimized LEDs focused on improving lumen density, intensity, efficacy, optical control and/or reliability.

expert design assistance and superior sales support, our LED products enable our customers to develop and market LED-based products for general lighting, video screens and specialty lighting applications.

Segments are determined based on sources of revenue, types of customers and operating performance.

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Certain other indirect operating income and expenses are generally allocated to segments based on their respective percentage of net sales.

We do not allocate interest, other non-operating (income) expense or taxes to segments.

We do not identify (other than goodwill) or report internally our assets nor allocate certain expenses and amortization, interest, other non-operating (income) expense or taxes to segments.

Year ended August 25,

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Flow through of inventory step up ( 2,599 ) — ( 7,090 )

Out of period import tax expense (1)

— ( 4,345 ) —

Cost of sales-related restructure ( 6,813 ) — —

Acquisition and integration expenses ( 20,869 ) ( 7,090 ) ( 5,314 )

Impairment of goodwill ( 19,092 ) — —

Change in fair value of contingent consideration ( 29,000 ) ( 41,324 ) ( 32,400 )

Restructure charge ( 7,047 ) ( 234 ) ( 3,172 )

Other ( 1,800 ) ( 624 ) 2

Total unallocated ( 171,049 ) ( 110,285 ) ( 99,190 )

Consolidated operating income $ 114,509 $ 55,197 $ 41,330

(1) During the second quarter of 2021, we recorded an out-of-period adjustment to correct errors originating in previous periods related to understated import tax costs, which resulted in a $ 4.3 million increase in cost of sales, $ 0.7 million increase in interest expense and a $ 1.7 million benefit to income taxes.

The adjustment was not considered material to the interim or annual consolidated financial statements for the year ended August 27, 2021 nor to any previously issued interim or annual consolidated financial statements.

Consolidated operating income (loss) $ 8,745 $ 67,176 $ ( 15,706 )

Depreciation included in segment operating income was as follows:

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Concentrations

Our concentrations of credit risk consists principally of cash and cash equivalents and accounts receivable.

Our concentrations of credit risk consists principally of cash and cash equivalents, investments and accounts receivable.

Our revenues and related accounts receivable reflect a concentration of activity with certain customers.

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Sales to our ten largest customers in 2023, 2022 and 2021 were 60 %, 62 % and 59 %, respectively, of total net sales.

As of August 26, 2022, two customers accounted for 22 % and 17 %, respectively, of accounts receivable.

As of August 25, 2023, there were no customers that accounted for more than 10% of accounts receivable.

Net sales to a number of customers each exceeded 10% of our total net sales in the past three years.

Net sales to a Memory Solutions customer were 11 %, 12 % and 17 % of total net sales in 2022, 2021 and 2020, respectively.

Net sales to an IPS customer were 23 %, 20 % and 15 % of total net sales in 2023, 2022 and 2021, respectively.

Additionally, net sales to another Memory Solutions customer were 11 % of total net sales in 2020.

Additionally, net sales to another IPS customer were 11 % of total net sales in 2022.

Net sales to a Memory Solutions customer were 11 % of total net sales in 2022.

No other customers accounted for more than 10% of our total net sales in 2023, 2022 and 2021.

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United States $ 877,416 $ 705,404 $ 601,728

Brazil 424,933 447,249 390,021

China 192,104 309,175 213,989

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$ 1,441,250 $ 1,395,876 $ 1,055,529

Long-lived assets by geographic area, including property and equipment and right-of-use assets, were as follows:

Long-lived assets, including property and equipment and right-of-use assets, by geographic area were as follows:

As of August 25,

2023 August 26,

Brazil $ 62,803 $ 63,858

China 52,201 61,405

United States $ 127,535 $ 102,907

China 42,331 52,201

Malaysia 10,324 10,778

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$ 187,178 $ 168,531

Quarterly Financial Data (Unaudited)

The table below sets forth selected quarterly consolidated financial data from our continuing operations for 2023 and 2022:

Q4 FY23 Q3 FY23 Q2 FY23 Q1 FY23 Q4 FY22 Q3 FY22 Q2 FY22 Q1 FY22

Net sales $ 316,658 $ 344,418 $ 388,377 $ 391,797 $ 362,459 $ 349,298 $ 327,827 $ 356,292

Gross profit 91,585 100,480 111,008 112,098 94,420 100,645 94,296 101,684

Operating income (loss) ( 1,639 ) ( 2,386 ) ( 2,077 ) 14,847 23,060 26,204 1,553 16,359

Net income (loss) attributable to SGH 64,841 ( 19,648 ) ( 33,396 ) ( 3,939 ) 8,862 13,924 ( 6,602 ) 6,188

Earnings (loss) per share:

Basic $ 1.28 $ ( 0.40 ) $ ( 0.68 ) $ ( 0.08 ) $ 0.18 $ 0.28 $ ( 0.13 ) $ 0.13

Diluted $ 1.17 $ ( 0.40 ) $ ( 0.68 ) $ ( 0.08 ) $ 0.18 $ 0.25 $ ( 0.13 ) $ 0.11

Shares used in per share calculations:

Basic 50,807 49,380 49,116 48,962 49,238 50,095 49,522 49,011

Diluted 55,523 49,380 49,116 48,962 50,504 54,998 49,522 54,635

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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• Assessed the terms and conditions in the contractual documents and evaluated the appropriateness of management’s application of their accounting policies in the evaluation of performance obligations and the recognition of revenue as performance obligations are satisfied.

Divestiture of SMART Brazil – Classification of the Assets and Liabilities as Held-For-Sale and Measurement of Impairment Loss - Refer to the Divestiture of SMART Brazil note to the financial statements

Critical Audit Matter Description

On June 13, 2023 the Company entered into an agreement with Shenzhen Longsys Electronics Co., Ltd.

(“Longsys”) for the sale of an 81% interest in SMART Brazil (the “disposal group”).

As of August 25, 2023 the completion of the transaction remains subject to various regulatory approvals and satisfaction of closing conditions.

In connection with the proposed sale, the net assets of the disposal group were classified as assets held-for-sale.

An impairment charge of $153 million was recorded to reduce the carrying amount of the disposal group to its estimated fair value less costs to sell.

We identified the assessment of whether the disposal group meets the criteria as an asset held-for-sale and the determination of the amount of the associated impairment charge as a critical audit matter, as these areas required a high degree of auditor judgment and an increased extent of audit effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the classification of the Brazil disposal group as held-for-sale and the determination of the impairment charge included the following, among others:

– We tested the effectiveness of internal controls the Company has in place for applying the appropriate technical accounting guidance to record the financial statement impacts of the proposed sale.

– With respect to the Company’s conclusion that the disposal group meets the criteria to be considered held-for-sale:

• We read the agreement entered into between the Company and Longsys on June 13, 2023 regarding the sale of an 81% interest in the disposal group.

• We reviewed management’s analysis of whether the criteria to classify the disposal group as held-for-sale were met as of August 25, 2023.

• In order to assess management’s assertion that it is probable that the disposal will be completed within one year, we made inquiries of relevant personnel in the company’s finance, legal and executive functions regarding the status of the transaction as well as the regulatory and other conditions that need to be met.

– With respect to the determination of the impairment charge:

• With the assistance of professionals in our firm having expertise in accounting for divestitures, we evaluated the appropriateness of the technical accounting guidance used by the Company to record the financial statement impacts of the proposed sale.

• We reviewed management’s determination of the impairment charge, and (i) agreed the carrying value of the disposal group, including amounts related to cumulative translation adjustments, used in such analysis to the underlying accounting records and (ii) assessed whether management’s determination of the estimated fair value of the disposal group was consistent with the terms of the June 13, 2023 agreement between the Company and Longsys.

/s/ DELOITTE & TOUCHE LLP

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data